schell, william

8/13/2019 Schell, William

1/24

Universidad Nacional utnoma de MxicoUniversity of California Institute for Mexico and the United States

Money as Commodity: Mexico's Conversion to the Gold Standard, 1905Author(s): William Schell, Jr.Source: Mexican Studies/Estudios Mexicanos, Vol. 12, No. 1 (Winter, 1996), pp. 67-89Published by: University of California Presson behalf of the University of California Institute forMexico and the United Statesand the Universidad Nacional Autnoma de MxicoStable URL: http://www.jstor.org/stable/1052078.

Accessed: 06/02/2014 00:56

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at.http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of

content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms

of scholarship. For more information about JSTOR, please contact [email protected].

.

University of California Press, Universidad Nacional Autnoma de Mxico, University of California Institute

for Mexico and the United Statesare collaborating with JSTOR to digitize, preserve and extend access toMexican Studies/Estudios Mexicanos.

http://www.jstor.org

This content downloaded from 132.248.9.8 on Thu, 6 Feb 201400:56:37 AMAll use subject to JSTOR Terms and Conditions
http://www.jstor.org/action/showPublisher?publisherCode=ucalhttp://www.jstor.org/action/showPublisher?publisherCode=mexushttp://www.jstor.org/action/showPublisher?publisherCode=mexushttp://www.jstor.org/action/showPublisher?publisherCode=unamhttp://www.jstor.org/stable/1052078?origin=JSTOR-pdfhttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/stable/1052078?origin=JSTOR-pdfhttp://www.jstor.org/action/showPublisher?publisherCode=unamhttp://www.jstor.org/action/showPublisher?publisherCode=mexushttp://www.jstor.org/action/showPublisher?publisherCode=mexushttp://www.jstor.org/action/showPublisher?publisherCode=ucal


2/24

Money as Commodity:Mexico's Conversion to the Gold Standard, 1905WilliamSchell, Jr.

Murray State University

Despues de discutir la influencia que tuvo la plata en los ciclos econ6micosdel Porfiriato, este articulo examina el impacto de la conversi6n de Mexicoal patr6n oro en 1905, implementada porJose Ives Limantour,y su sub-secuente contribucion a la recesion que precedio a la Revoluci6n de 1910.Se hace hincapie en la relaci6n economica de Mexico con Asia a traves delmercado del peso.

HaciendaMinister ose Yves Limantours one of the few mem-bers of the Porfirianelite to have emerged from Mexico's 1910Revolutionwith his reputation elativelyntact.Heis oftendescribedas the Diazregime'seconomic wizard nd his reforms-the aboli-tion of alcabalas (internal ariffs), ationalizationf national inances,renegotiationof Mexico's oreigndebt to 4 percentunsecuredbonds,increasedregulation f banking,and the creationof a national ailwaysystem-are viewed as majoraccomplishments.1However,the ver-dict on Limantour'smost difficultreform, he 1905conversion o the

1. Limantour was held In high regard even after the fall of the regime. SeeEdward I. Bell, The Political Shame of Mexico (New York: McBride, Nast & Co.,1914), 17 and passim. Even the muckraker Carleton Beals, Porfirio Dfaz: Dictator ofMexico (Philadelphia: J.B. Uppincott, 1932), 332 and passim, judges Limantour'sreforms as economically sound, although he accuses Limantour of gross corruption.Modern historians concur that Limantour's reforms were sound but dismiss chargesof corruption. See Wilfred Hardy Callcott, Liberalism in Mexico, 1857-1929 (Ham-den, Conn.: Archon Books, 1965), 129 and passim; Peter Calvert,Mexico (New York:Praeger, 1973), 67 and passim; Alan Knight, The Mexican Revolution, vol. 1 (NewYork:Cambridge University Press, 1986), 22 and passim; and Friedrich Katz, Mexico:Restored Republic and Porfiriato, 1867-1910, in The Cambridge History of LatinAmerica, vol. 5, ed. Leslie Bethell (New York: Cambridge University Press, 1986),36.Mexican Studies/EstudlosMexicanos 12(1),Winter1996. 0 1996 Regentsof the Universityof California.

67

This content downloaded from 132.248.9.8 on Thu, 6 Feb 201400:56:37 AMAll use subject toJSTOR Terms and Conditions
http://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsp


3/24

MexicanStudies EstudiosMexicanosgold standard, is mixed. The prevalent view is that, although thetrends in the world economy were against him, it was necessary, andLimantourmanaged it deftly.2While some dissent on the latter point,sustaining Francisco Bulnes's critique of Limantour's mismanage-ment,3 few question the need for the gold standard itself at thattime.4Limantourpresided over years of vigorous debate leading up tothe 1905 reform. Apparently sound economic arguments were ad-vanced, pro and con. The scales were tipped in favor of reform by apositivist social Darwinistic (that is to say pseudoscientific and non-economic) argument: to wit, gold was the money of modern, civi-lized nations, while silver served backward nations such as China andIndia.5 Because gold was progressive, the Porfirian elite ended freecoinage of silver. Mexico joined other aspiring advanced nations,Russia and Japan, in the rush to gold. As an international standard,gold would endure less than twenty-five years.This article discusses Limantour'smonetary policy in the contextof economic links between Mexico and EastAsia through the mecha-nism of the peso market, and examines its contribution to the reces-sion preceding the 1910 Revolution. In his study of Edwin Kem-merer, Paul Drake dubbed him the Money Doctor. 6 Notcoincidentally, Kemmerer'smentors, America's first MoneyDoctors,Jeremiah W.Jenks (professor of political economy at Cornell) andCharlesA. Conant (prominent financial correspondent and partner in

2. Michael C. Meyer and William L. Sherman, The Course of Mexican History(New York:Oxford University Press, 1979), 241, refers to the conversion to gold asmost important for the economic well-being of the country. B.W Alston, ThePublicCareer of Don Jose Ives Limantour (Ph.D. diss., University of Texas, Austin, 1972),134 and passim; Carlos Diaz Dufoo, Limantour (Mexico: Imprenta Victoria, 1922),199 and passim.3. John Mason Hart, Revolutionary Mexico: The Coming and Process of theMexican Revolution (Berkeley: University of CaliforniaPress, 1989), 169 and passim.To this school also belongs Ram6n Eduardo Ruiz, The Great Rebellion: Mexico1905-1924 (New York:W.W Norton and Co., 1980), 51 and passim. Compare withFrancisco Bulnes, El verdadero Dfaz y la revoluci6n (Mexico: Editora Nacional,1960), 244 and passim. These authors are right in general but wrong in particular.4. Walter F McCaleb, The Public Finances of Mexico (New York:Harper Bros.,1921), 176 and passim, is an exception.5. For example, see Reprehensible Policy of Alarm, Mexican Herald, 3 No-vember 1903. Also of value, see Michael O'Malley, Specie and Species: Race and theMoney Question in Nineteenth-Century America, American Historical Review 99(1994):369-95.6. Paul W Drake, The Money Doctor in the Andes: The Kemmerer Missions,1923-1933 (Durham: Duke University Press, 1989); and Drake, ed., Money Doctors,Foreign Debts, and Economic Reforms in Latin America (Wilmington, Del.: ScholarlyResources, 1994).

68



4/24

Schell: Money as Commoditythe Morton Trust Company), assisted Limantour at the birth of theMexican gold standard.Jenks and Conant were the chief theoreticians of what becameknown as dollardiplomacy. 7They concluded that the U.S. economysuffered from savings in excess of profitable investment outlets.Oversavings, as they called it, depressed interest rates, led to re-dundant investment, overproduction and low prices, in short, boom-and-bust cycles. They argued that the stability and prosperity of theAmerican economy depended upon its ability to expand freely into,and exercise a controlling voice in, the international economy. 8 Inthe spring of 1903, Conant visited Mexico, the recipient of 50 per-cent of all U.S. foreign investment, extolling business opportunitiesthere and predicting a flood of investment once a stablemonetarysystem was in place. 9 Subsequently, the Yankee Money Doctorsadvised the Mexican currency commission to smooth the transitionto gold.

Briefly, my argument is this: Although the Mexican economygrew more diverse during the Porfiriato,the influence of silver on itscycles remained paramount.10 The adoption of the gold standarddeprived Mexico of an elastic currency well suited to the develop-ment of its national and regional economies.11 From 1898, Mexican

7. For an overview of their activities, see Emily S. Rosenberg, Foundations ofUnited States International Financial Power: Gold Standard Diplomacy, 1900-1905,'Business History Review (hereinafter cited as BHR) 59 (1985):169-202. Also Alston,Public Career, 149.8. CarlP Parriniand MartinSklar, Thinkingabout the Market,1896-1904: SomeAmerican Economists on Investment and the Theory of Surplus Capital, ournal ofEconomic History (hereinafter cited asJEH) 43 (1983):578. Lloyd C. Gardner,WalterF LaFeber,and Thomas J. McCormick, Creation of the American Empire: US. Diplo-matic History since 1893, vol. 1 (Chicago: Rand McNally, 1976), 214-19.9. Financieros americanos, and Los economistas; El Imparcial, 15 and 25March 1903; and Business Notes, Mexican Herald, 9 April 1903.10. Although mining employed only 2 percent of the work force according tothe 1895 census, the output per worker in pesos was almost five times greater thanthe average of all other economic sectors, and of course, silver exports out priced allothers. Donald B. Keesing, StructuralChange Early n Development: Mexico's Chang-ing Industrial and Occupational Structure from 1895-1950, JEH 29 (1969):716-38.11. Also, Lacuesti6n de la plata, El Diario, 18 November 1907. This opinionon the positive effects of a silver currency and the ill-effects of the gold standard wasshared by John Maynard Keynes, The General Theory of Employment, Interest andMoney, cited by Richard Hofstadter in TheAmerican Political Tradition (New York:Vintage Books, c1968), 188. For a recent exploration of this theme and of the silverquestion, see Milton Friedman,Money Mischief:Episodes in Monetary History (NewYork: Harcourt Brace and Co., 1994). Remarkably, n December of 1906, only one yearafter Mexico's conversion to gold, Roosevelt gave a speech complaining of theinelasticity of the U.S. currency. See Need of Revision of the Currency Laws' in TheRoosevelt Policy Speeches, Letters..., vol. 2, ed. William Griffith (New York:CurrentLiterature Publishing Co., 1919), 477.

69



5/24


6/24

Schell: Money as Commoditybefore unlimited coinage was ended in 1905, only about 100 millioncirculated in Mexico; most of the remainder went to EastAsia.14InMexico too, bulky silver pesos were treated as a commodity, buriedin pigskins, stashed in trunks, or stored by merchants for a small feewhen investment opportunities were lacking.15 Thus, even underfree coinage, the peso's commodity property sometimes led to cur-rency shortages.After the Spanish-AmericanWar,Washington saw the profit po-tential of trade dollars and minted a U.S. silver coin to compete withthe silver peso in East Asia.16 This was unsuccessful, and subse-quently, the United States put the Philippines on the gold standard. Italso required its share of China's Boxer Rebellion indemnity be paidin gold, forcing China to sell pesos, driving down the price of silverand coin. Porfirian counterinitiatives to protect the peso includedmaking payments, owed the United States as a result of the PiousFund of the Californias judgement, in silver pesos, which were re-coined for use in the Philippines.17 American miners in Mexico,adversely affected by Washington'sattack on the peso, supported thePorfirian position, revealing a systemic paradox of dollardiplomacy -Washington's geopolitical goals were often at odds with

14. The estimateof the numberof pesos in circulationn Mexico comes fromDiazgovernmentstatisticscited in Parsons o Peirce,23 November1904, ConsularDespatch, M296, roll 14:24-25, 61, GeneralRecordsof the Departmentof State,recordgroup 59, NationalArchives,Washington,D.C.(hereinaftercited as NAbydocument and microfilm oll).Warsand revolutions isruptedhe silverpeso trade nthe early nineteenth century,but by 1851, U.S. PacificMailSteamshipCompanyvessels were regularly akingon largeshipmentsof bullion andpesos at Manzanillo.Kennett Cott, MexicanDiplomacyin the Chinese Issue, 1876-1910, HAHR67(1987):63-69. JohnH. Kemble,The Panama Route(Columbia:Universityof SouthCarolinaPress, 1990), 147.Also MoneyCrisis, TheMexicanDollar, Mexicon theOrient, nd Silver n 1901, MexicanHerald,1January, February, nd 28 March1901, and 26January1902.15. ThomasU. Brocklehurst,MexicoTo-DayLondon: ohnMurray,883),246;and PrivateBanking,MexicanHerald,26 September1899. The hoardingof coinpersistedeven afterbankingwas well established.See TheMonetaryCommission,MexicanHerald,15 March1903.16. TheSilverMovement,MexicanHerald,1January 898. MexicanDollars,and Silver t Manilla,MexicanHerald,3 and 8 June 1898.ForCharlesA. Conant'sviews, see TheCurrencyof the Philippine slands,'Annals of theAmerican Acad-emy of Political and Social Science 20, no. 3 (1902):44-59. Philippinebankerscontinued to deal In silver pesos even after the United Statesimposed the goldstandard. See The Mexican Dollar in the Orient, Mexican Herald, 26 January1904.17. La lata, lImparcial,24January 903.Francis. Weber, ThePiousFundof the Californias,HAHR43 (1963):91.The Philippinegovernmentpermittedtheimportationof silverpesos as bullion, ee DemonetizeMexicanPeso MexicanHerald,28January1904.A.P.Andrew, End f the MexicanDollar, uarterlyJournalof Economics 18 (1904):321-56;andAlston, PublicCareer, 20andpassim.

71



7/24

Mexican Studies / Estudios Mexicanosthe economic interests of its presumed agents, the Yankeeinvestors.The impact of the silver peso trade on the Porfirianeconomy hasbeen largely ignored, in part because peso shipments were thoughtto constitute capital flight, payment for merchandise, and loan servic-ing.'8 However, I am convinced that silver peso exports were pri-marily profitable commodity transactions.Nothing else could explaina volume of fifty thousand pesos per day passing through a single U.S.customshouse in El Paso, Texas, from August to December of1901.19

Figure 1: Millions of PesosCoined and ExportedO.oo a04. 005.00 ~40.00 -

30. 00 -25.00 -20.00 -

10. 00~ ,

0.001095 g9 97 9 g99 1900 01 02 03 04 06 04 07 0 0

Fiscalyear endingo = CoinedO = ExportedA = Silver (Silver price given in dollars per pound)Sources: Monetary Commission Reports of 1904 and 1909 reprinted withannexes in the Mexican Herald, 19 January-7 February 1904, and 27November-31 December 1909; andJohn B. McFerrin,Jr., The Forces Makingfor the Demonetization of Silver since 1870 (M.A.thesis, Universityof NorthCarolina, Chapel Hill, 1933, 22, table 2.

18. Theaccepted interpretation f a positivebalanceof paymentsas shown inthe cover graph,EstadfsticasEcon6micas del Porfiriato:Comercio Exterior deM6xico,1877-1911, ed. Colegiode Mexico Mexico,1960)is contradicted yRobertFreemanSmith, The United States and RevolutionaryNationalism in Mexico,1916-1932 (Chicago:University f ChicagoPress, 1972),4-5, who states: Mexicoreturned to the investingnations approximately65 percent of her total exportearnings 1910) in the formof profitremittances,ervice on theforeigndebt,freightcosts, insurance ees andothercharges.Thisdid not includepayment or imports19. Alston, PublicCareer, 34.

72



8/24

Schell: Money as CommodityIt would appear that the silver peso market was driven primarilyby demand issuing from economic conditions in India, China, andSoutheast Asia.Although the peso's price followed that of bullion, mydata shows no link between the raw price of silver and peso exports.Rather it shows silver peso exports increased when the price gapwidened between coin and bullion. This might occur either whensilver peso prices lagged behind a rise in bullion prices or when pesoprices fell relative to bullion-small, potentially profitable, changes.The Banco Nacional, the Banco Central, and other government char-tered banks held large stocks of silver pesos which could be sold

directly overseas or at a premium to currency speculators, partic-ularlyYankee money men.20Until 1905, increased peso exports coincided with downturns inthe Mexican economy. For example, during the boom from 1898 to1900, silver peso exports declined to their lowest levels in over adecade. In the fiscal year 1900-01, as foreign investment in Mexicanmining hit a fifteen-year low, Mexican economic growth slowed, andpeso exports rose sharply, while the number minted remained un-changed. By 1902, Mexico's economy again surged; silver peso coin-age increased, and coin exports plummeted. In 1903, Americanmining investment hit a period high as did the number of pesosminted, while silver peso exports leveled off.21If the peso trade was driven by EastAsian demand as previouslynoted, this conjunction of Mexican economic slowdowns and in-creased peso exports is difficult to explain. Some contemporaryobservers felt that large silver peso exports caused economic mal-aise by forcing up interest rates.22In contrast, British Consul LucienJerome reported that interest rates were driven up by speculatorsborrowing heavily during economic booms (when silver peso ex-ports were low) and fell when business and demand for capital weredull when peso exports increased).23IfJerome is correct, exportsmay have risen in part due to excess coin made available by eco-nomic slowdowns in Mexico.Whatever the root cause of this economic symbiosis, it waseliminated following the 1905 reform. During the years 1905 and

20. ForStableExchange,'MexicanHerald,3 November1903; BusinessNotes:'MexicanHerald,8 July,2 September1900;and Situation eview, MexicanHerald,16 December1900.21. In 1900, Americans nvested 1,500,000pesos in Mexicanmines;in 1903,44,686,000 pesos; and in 1906, 27,548,000pesos. See Capitaln Mexico, MexicanHerald, 19 January1909; Moneyand Credit, Mexican Herald,9 May1903; andCoinage nsufficient'MexicanHerald,21 April1904.22. Reprehensible olicyof Alarm,MexicanHerald,3 November1903.23. BusinessUnaffected,MexicanHerald,27 October1904.

73



9/24

MexicanStudies EstudiosMexicanos1906, the Porfirian economy continued to prosper, with foreignmining investment reaching its second highest level since 1886. Butrather than declining, silver peso exports rose astronomically, thenbottomed out in the 1908 recession, as did American investment inmines.24

Silver, American Investment,and Porfirian Economic CyclesThe silver peso was an elastic currency responsive to Mexico'seconomy due, in no small measure, to its commodity function. In hisstudies of U.S.-Mexican trade, Richard Salvucci has shown that pesoexports to the United States formed a direct link between the expan-sion of Mexican demand and the American money supply -a trans-mission mechanism between American and Mexican business cy-cles.25 When Washington demonetized silver in 1873, the tandemmovement of the two economies diminished, then ceased altogetherafter 1879 when the United States resumed convertibility of the pesoin gold alone.26Thereafter,economic slowdowns in the United States

saw surges of American investment in Mexico, while economic slow-down in Mexico was accompanied by significant increases in silverpeso exports that accelerated recovery by stimulating silver produc-tion.27Indeed, the Porfirianfinancial-politicalelite boasted that finan-cial panics, such as those that afflicted the United States, were un-known in Mexico.28Mexico enjoyed a period of relative economic growth from 1873to 1878, as the United States experienced a contraction. Both econo-mies expanded from 1878 to 1882; Mexico continued to growthrough 1883, while the U.S. began a decline ending with the crashof 1884, coinciding with a downturn in Mexico. The U.S. economyrecovered the following year, but recession lingered south of the24. Reprehensible Policy of Alarm Mexican Herald, 3 November 1903.25. RichardJ. Salvucci, Aspects of the United States-Mexico Trade, 1825-1890:A Preliminary Survey (Paper delivered at the American Historical Association meet-ing, Chicago, December 1986), 38-39, and TheOrigins and Progress of U.S.-MexicanTrade, 1825-1884: 'Hoc Opus, hoc labor est', HAHR71 (1991):698-735.26. Ibid. The Bland-Allisonand Sherman Silver Purchase Acts had little effect onU.S. money supply and almost none on world silver prices, which fell steadily duringthe three years the Sherman act was in effect. See McFerrin, Forces Making for theDemonetization of Silver, 22; and Friedman, Money Mischief; 67, 107, 116. Thus, theU.S. Currency Act of 1900 was not as profound a change in policy as suggested byHart, Revolutionary Mexico, 170-7127. Nuestro comercio exterior, El Imparclal, 3 May 1903. Also, WilliamSchell,Jr., American Investment In Tropical Mexico: Rubber Plantations, Fraud and Dollar

Diplomacy, BHR 64 (1990):217-54.28. Lospanicos financieros, El Imparcial, 30 March 1903.

74



10/24

Schell: Money as Commodityborder until 1887. The U.S. suffered severe depressions from 1890 to1893 and again in 1897; Mexico experienced decline during that firstperiod but not the second. In 1900, the U.S. economy was strong;Mexican growth slowed at midyear, rebounded in mid-1901, andexpanded rapidly through 1905.29The WallStreet panic of 1903 hadlittle effect on Porfirianeconomic performance other than the failureof an American commercial bank located in Mexico City, the Inter-national Banking and Trust Company (IBTC),whose officers in theU.S. had unwisely speculated with bank funds.30 After the 1905reform, Mexican and U.S. economic cycles synchronized once again,and the conjunction of increased silver peso exports and economicslowdown reversed itself.In his seminal study of the effects of falling silver prices onAmerican investments, David Pletcher attributes Mexico's economicexpansion primarily to the pax porfiriana and the railroads.31Yeteconomic expansion preceded both in many regions, and monetaryfactors played a key role.32 Observers commenting on the Mexicaneconomy prior to the 1905 reform noted the usual benefits of adepreciating currency.33The cheap silver peso generated high inter-

29. Salvucci, Aspects f the UnitedStates-Mexicorade, 8-19;JohnA.James,Moneyand CapitalMarkets n PostbellumAmerica(Princeton:PrincetonUniversityPress, 1978), 125, 186, and 264; and Sereno S. Pratt,The Workof WallStreet:AnAccount of the Functions,Methodsand History..., 3d ed., revised/enlarged yJ. FCrowell (New York/London:Appleton and Co., 1928), 24-30. LuisCerda, FirstReportof ResearchActivities n Mexico unpublishedms., 1990);DorothyR.Adler,BritishInvestments in American Railways, 1834-1898, ed. MurielE.Hidy(Char-lottesville:UniversityPressof Virginia, 970), 158;and ThomasCochran nd WilliamMiller,TheAge of Enterprise:A Social Historyof Industrial America (New York:HarperTorchbooks,1961), 190.30. Lasqulebrascomerciales, nd Suspensi6nde pagos, El Imparcial, 26Februaryand 18 October 1903;and relatedstories, 19-30 October 1903. On thecollateraldamageof IBTC'sailure,see JulioCervantes o Diaz,4 November1904,Colecci6nPorfirioDiaz,Universidadberoamericana,MexicoCity(hereinafter itedas CPD),29:37, 14501.31. Pletcher, Fall f Silver, 9.32. As late as 1887,the Herculescotton mill at Queretaromaintained privatemilitiaarmedwith Winchestersandartillery o man its fortresswallsagainstattackand to protect its shipmentsand collection agents.See DavidA. Wells,A StudyofMexico(New York:AppletonandCo., 1887), 150-51. Fora completediscussion ofdisorder n the Porfiriato,ee PaulJ. Vanderwood,Disorderand Progress:Bandits,Police and MexicanDevelopment Lincoln:University f NebraskaPress, 1981).Onprerailexport booms andeconomic expansion,see Salvucci, Aspectsof the UnitedStates-MexicoTrade, 4 andpassim.33. For example, see MatiasRomero, Mexico and the United States; aStudy...Made with a View to their Promotion (New York/London:G. P.Putnam'ssons, 1898), 567, 575, and passim;EnriqueCreel, TheSilver Basis in Mexico,BankersMagazine 65 (November1902):677-81; Silver rices, MexicanFinancier,27 September1890; Mexicoand Silver,MexicanHerald,22 January1897; Item,

75



11/24

MexicanStudies EstudiosMexicanosest rates, attracting investors discouraged by low rates at home. Itacted as a natural tariff spurring import replacement and exportexpansion; the economy grew more diverse with light industriessuch as textile manufacture, food processing, and after 1900, someheavy industry.34It favored business which counted costs in silverand profits in gold, such as tropical export agriculture. Conversely,businesses with bonded debts payable in gold suffered, particularlyrailroads, which passed on their costs making transportation moreexpensive. This was slightly offset in the export sector as the cheapsilver peso made Mexican products more competitive on worldmarkets.35Banking and other financial services also flourished under silver.Mexico's pre-1905 monetary laws and privatizedminting made it easyfor miners to become bankers. One example is Enrique C. Creel,scion of a daughter of the powerful Terazzasclan of Chihuahua andan American father, future ambassador to Washington, and Mexico'sleading banker. His first bank (one of a dozen he founded by 1907)was capitalized, as its name Banco Minero suggests, by the Terrazas-Creel mines. Another hacendado-miner, Ram6n Alcazar, leased theCasa de Moneda de Guanajuatoy Zacatecas from the government tocoin his silver and was a founder or director of five banks, includingtwo state banks-the Banco de Michoacan and Banco del Estado deMexico.36From 1896, the financial sector experienced a significant expan-Mexican Herald, 31 July 1897; Mexican Wheat, Mexican Herald, 15 September1897; The Outlook for Mexico, Mexican Herald, 9 February 1899; Cheap Money,Mexican Herald, 25 March 1900; Nuestro comercio exterior-la bajade la plata y laproducci6n, El Imparcial, 3 May 1903; Walter Clark, Mexico in Mid-Winter, TheArena 78 (1896):580-85; and Wages Paid in Silver Countries, no date (1896?), CPD,21:30, 14942. Also, Charles Lummis, TheAwakening of a Nation: Mexico of To-Day(New York:Harper Bros., 1902), 74 and passim; and G. B. Winton, A New Era in OldMexico (Nashville/Dallas: Methodist-Episcopal Church (South) Publishing House,1905), 172.

34. Jaime E. Zabludovsky, Money, Foreign Indebtedness and Export Perform-ance in Porfirist Mexico (Ph.D. diss., YaleUniversity, 1984). P.Joseph Powers, 'YoursVery Truly,Thos. T. Crittenden': A Missouri Democrat's Observations of the Electionof 1896, Missouri Historical Journal 68 (1974):186-203. Consul General T. T.Crittenden observed in an 1898 report that free silver in the United States would setMexico's progress back 100 years by swamping Mexico's infant industry with U.S.goods. The Most Unkindest Cut etc., Mexican Herald, 20 January 1898.35. Nuestro comercio exterior, El Imparcial, 3 May 1903.36. See MarkWasserman, Capitalists, Caciques, and Revolution: The NativeElite and Foreign Enterprise in Chihuahua, Mexico, 1854-1911 (Chapel Hill: Uni-versity of North Carolina, Chapel Hill Press, 1984). On Alcazar, see Jacqueline AnnRice, The Porfirian Political Elite: Life Pattern of the Delegates to the 1892 UnionLiberal Convention (Ph.D. diss., University of California, Los Angeles, 1979), 157.

76



12/24

Schell: Money as Commoditysion led by the rapid growth of American-owned commercial (un-charted) banks, the importance of which has been completely over-looked. In Mexico City alone, eight American banks were open forbusiness by 1902.37 By 1905, the four largest had 9 million dollars incombined deposits and 4 million in capital and served as conduits formany millions of dollars of middle-class American capital to enterMexico.38 This investment, particularlyin plantation agriculture, lim-ited effects of the slowdown during the fiscal year 1900-01 andhastened Porfirian economic recovery which began in 1902. Ameri-can commercial banks stimulated the creation of state banks of issuewith which several had close ties, even interlocking directorates andreciprocal deposits. For example, the Banco de Chiapas, foundedunder the concession granted the Nebraska-incorporated Pan-American Railway Company, was eventually purchased by Creel,while the American-owned U.S. BankingCompany acquired a control-ling interest in Alcazar's Banco del Estado de Mexico.39 After thereform, few banks were established, although a number of institu-tions were reorganized to improve links to foreign banks.40

I.mmantour's Road to ReformTrouble with Mexico's silver standard came during Diaz's secondterm. From 1884 to 1889, the peso, once at parity with the U.S.dollar, steadily devalued as the price of silver fell. This, according toPorfirianeconomists (whose ranks included Joaquin Casasus, a risingfinancier-lawyer, who would later serve on Limantour's monetarycommission and as ambassador to the United States), was due to37. PassingDay, 16 February 897; Reorganization, 0 May1897; BusinessGossip, 13 March1898; NewBank 5 September1899; American uretyCo.,' 6February1900; ATrustCo., 15 May1900; Mr.StilwellHere, 21 January1901;Building nd LoanCo. of Mexico, 3 February 901;Adfor Wm. V.BackusCo., 21May1901; ABankMeeting, 13June1901;andAd,Sherman nd HeadenBankers,7March1902;all Mexican Herald.38. Bankingn Mexico, ModernMexico 19(August1905):30-31and 18.39. William Schell, Jr., Banco de Chiapas:A License to Print Money-Collaborators,Swindlers and the PorfirianBankingSystem, SECOLAS nnals 24(1993):58-68, and YankeeBankers nd Builders:The Growthof MexicoCityduring

the LatePorfiriato Paperdeliveredat the OhioValleyHistoryConference,EasternKentuckyUniversity,Richmond,Ky.,October1994).40. Notableexceptions includeBancode laAmericadel Surregistered n 1906with a capitalof 20 millionmarks;BancoMexicanode Comercioy Industriaalsoopened in 1906with a capitalof 10 millionpesos;Bancode laLaguna stablished n1908with activecapitalof 4.2 millionpesos;CiaBancaria e Paris Mexico,with 10millionpesos in capital n 1909.Only he Laguna ankwaschartered;he otherswerecommercialbanks. FrenchBankWill Open Next Monday,Mexican Herald, 31December 1909; and The Mexican YearBook (Mexico City/London/NewYork:McCorquodale& Co. Ltd,1913), 56-63.

77



13/24

Mexican Studies / Estudios Mexicanosartificial ntervention -that is, the spread of the gold standard andthe increasing replacement of silver coin with paper money.41 In1890, silver rebounded to its former price, only to fall even moresharply by about 50 percent over the next four years, leading to theorganization of an international monetary conference in Brussels,where Casasus represented the Diaz government.42 Silver pricesmade a modest recovery through 1896, only to decline by 1897 to arelative plateau that kept the peso at about fifty U.S. cents until1900.

By 1897, there was widespread belief that foreign investmentwould decrease unless the regime could stabilize the price of thesilver peso relative to gold. If the value of the coin could not be freedfrom the fluctuations of bullion silver, Mexico would be forced toconvert to the gold standard.43 Gold standard advocate OttomarHaupt, whose work Limantourrespected, reported that there was astrong party...pressing the Mexican government to take a decision inthat direction. 44But the opposing influence of silver miners, themajority of whom were American, prevented precipitous action.45Mexico's peso again began to decline in 1900. As the economyslowed, silver peso exports rose, and in 1901, Limantour removedtaxes on the reimportation of pesos in the hope that Mexico couldimpede silver's price slide and rebuild its stock of coin.46As the pricedeclined further, Limantourbegan collecting import-export duties ingold to protect government revenues and attempted to form a coali-tion with China, Japan, and India to stabilize their currencies bycollective bargaining with gold countries having dependencieswhere silver is used. 47Limantour believed he had the support ofWashington and reported to Diaz atriumph for our politics. In theend, however, he was unsuccessful. Britainwould not cooperate inany plan that delayed Mexico's adoption of the gold standard, aposture which suited Washington as well, for gold was the specific

41. CarlosPacheco,ed., La crisis monetaria:Estudlos obre a crisis mercantily la depreciacl6nde laplata (Mexico:Tipograiade la Secretaria e Fomento,1886),400-01.42. For his account, see JoaquinD. Casasus,Le Probleme Monetaire (Paris:ImprimerieChaix, 1893).43. Creel, SilverBasis n Mexico, 81.44. The Timesof London reviewed n TheGoldStandard, exicanHerald,3June 1897. On Limantour'selationshipwith Haupt,see Romero,Mexicoand theUnitedStates,591.45. La eformamonetaria, lImparcial,17 December1904.46. TheGovernmentStepsIn, MexicanHerald,3 December1901.47. La uestl6n monetaria, nd La onferenciamonetaria, l Imparclal,31January nd21 February 903; HeUpholdsSilver,MexicanHerald,9January1903;DiazDufoo,Limantour,78andpassim.

78



14/24

Schell: Money as Commodityremedy prescribed by its own Money Doctors Jenks andConant.48

After his best efforts to maintain silver failed, Limantourinitiatedconversion to gold, guided by the recommendations of a commissionof Porfirianfinancial-politicaland technocratic elite.49Drawing on theexperience of the Yankee Money Doctors, who had carried outcurrency reform in the Philippines some years before, the commis-sion made a rather ineffectual attempt at a monetary census andproduced long scientific studies of possible courses of action.50Thereform law ended the free coinage of silver and the use of bullion(gold and silver) as bank reserves, permitting only the use of mintedcoin (gold, silver, copper). The peso was pegged at forty-nine U.S.cents. Some have characterized this as a 50 percent devaluation, butit was not; rather it reflected the average exchange rate prior to1901.51 Limantour had to arrange two additional foreign loans tomaintain the parity of the peso abroad52-to the delight of brokers ofMexican bonds.53

Significantly, commission members Creel and Casasus disagreedwith the majority decision to suspend free coinage of silver. Thatplan, they predicted, would take too long to establish parity andwould decrease business by 30 to 50 percent, an amount equal totheir estimated reduction of currency stocks. Instead they recom-mended the establishment of gold reserve funds from Mexicanmines.54When their warnings and advice were ignored, both movedquickly to form finance companies as conduits for American capitaland direct (often middle-class) investment.55

The Reform and Money SupplyThe prosperous years of 1904 to 1907 saw a paradox-currencycontraction and coin shortages on the one hand and economic ex-48. Limantouro Diaz,17June 1903,CPD,28:25, 9703-9706; and La uesti6nmonetaria, nd Financieros mericanos,El Imparcial, 2 February nd 14 March1903. Pletcher, Fall f Silver, 2.49. Ladepreciacionmonetaria, lImparcial,10August1903.50. El enso monetario,'ElImparcial, 18 March1903.51. Hart,RevolutionaryMexico,96, 166, and 171-73. Las nstitucionesdecredito, ElImparcial, 12July1905;and MexicanBankingRulesModified, 2 May1905, CPD,30:16, 6054; and ConsularDespatch, unnumbered),Parsons o Loomis,15June 1905, NA,M296,roll 15,vols. 26-27.52. McFerrin, ForcesMakingor the Demonetization f Silver, 37. McCaleb,Public Finances, 180-81.53. GeorgeD. Cookto Diaz,11 May1905,CPD,30:17,6419.54. MonetaryReform n Mexico, MexicanHerald,31January1904.55. Asociacl6n Financiera nternacional,S.A. to Diaz,June 1905, CPD,30:18,7130.

79



15/24

Mexican Studies / Estudios Mexicanospansion and inflation on the other. A tight money situation oc-curred in early 1904 with a rise in interest rates from 5 to 9 percent,resulting from the capital demands of a growing economy and theextension of a 7 million-peso credit to the troubled Mexican SugarTrust to delay a potential default.56Late that year, there was a slightsurge in silver coin exports. The Russo-Japanesewar created demand,pushing up bullion prices, while sticky peso prices made arbitragemore profitable.57Crisis was postponed only by the ever-increasingflow of American capital into tropical plantations, a significant por-tion of which was diverted to other sectors of the economy.58 Brieflyin 1905, both silver coinage and exports ceased as the reform began.Within months, regional banks reported strains due to the low vol-ume of currency circulation caused by the simultaneous implementa-tion of banking and currency reforms.59Silverprices continued to rise, however, reaching a ten-yearhighby January 1907. Although now well above the fixed reform level,silver peso prices still lagged behind bullion prices. Demand in-creased as India began buying. Mexican banks and speculators ex-ported almost 30 million silver pesos to East Asia in April of 1906alone, while only 5 million were coined.60 And since gold and silverbullion could no longer be counted as reserves, bankers removedmore coin from circulation to build up their stocks of specie, tyingup over two-thirds of the newly minted gold coin and about one-halfof the silver pesos.61 Minersprofited from the higher prices, but theywere also frustrated because, without free coinage, they would notbe able to take advantage of large increases in domestic demand forspecie which they knew from experience would soon follow.62

The severe currency shortage intensified with the intervention ofthe monetary commission, which facilitated the shipment of millions56. WhyMoneyIs Scarce,MexicanHerald,15 May1904.57. Silver nderReview,MexicanHerald,14January1905.58. WhyMoneyIsScarce,MexicanHerald,15May1904;andSchell, RubberPlantations59. Clipping,22 May1905, CPD,30:16, 6054;and Losbancos de los estados,ElImparcial, 20 September1905.60. Reportof Comisi6nde Cambiosy Monedade Mexico,9 June 1906, CPD,31:15, 5885. The chartof FernandoRosenzweig, Moneda Bancos, n Historiamodernade Mexico:ElPorftriato,a vida econdmica,vol.7, part2, ed. DanielCosioVillegas Mexico:EditorialHermes,1965),793-94.61. MexicanBankingRules Modified, 2 May1905, CPD,30:16, 6054. Also,Exchange ndCurrencyCommissionRendersReport o FinanceMinister, exicanHerald, 8-31 December 1909 (statisticalannexes to the commission'sreport toLimantour).62. Chinese and Indiandemand igures romMcFerrin,ForcesMakingortheDemonetizationof Silver, 0-63.

80



16/24

Schell: Money as CommodityFigure 2: Coin SupplyPost Reform

40. 0050. 00 -

40. 00 -

0. 00 -

20. 00

l.4O. O0 't0. 00 70' 00 - 906 O0 OJ 00 09

Fiscal year endingo = Total coins mintedO = Coinage retired and pesos exportedA = Total silver coin mintedSource: MonetaryCommission Report of 1909 reprintedwith annexes in theMexican Herald, 27 November-31 December 1909.of silver pesos from interior banks to the coast to be sold abroad forthe purpose of minting gold into new coin.63 Finally, Limantourhalted silver peso exports by imposing a 10 percent excise taxpayable in gold. The exchange of silver for gold at such a favorablerate is usually interpreted as a coup for Limantour,but this positiontakes a narrow policy view and ignores the larger economy.The reform imposed a currency shortage on a Porfirianeconomyexperiencing strong inflationarypressures due not only to the peso'sdevaluation but also to foreign investment and associated economicexpansion.64 About 70 percent of all capital invested in Mexicobetween 1886 and 1908 was foreign, Americans having six timesmore than their nearest rivals, the British.65 The influence of U.S.investment in Mexico was so great that even slowdowns in its growthrate were felt throughout the economy.66 The higher wages paidworkers by foreign enterprises, the growth of the petroleum in-dustry, price increases of 200 to 500 percent in the urban real estate

63. IsSmall Change Scarce?, Mexican Herald, 1July 1905.64. PriceRises, MexicanHerald,28 October1904.65. Froma Ministryf Fomentoreportreprintedn Capitaln Mexico,MexicanHerald,19January1909.66. Walter F McCaleb,Present and Past Banking in Mexico (New York/London:Harper&Bros.,1920),12-19, 51, andpassim.FranciscoM.Coghlan o Diaz,24 April1901, CPD,26:10,3919.

81



17/24

Mexican Studies / Estudios Mexicanosmarket and of 100 to 200 percent in the price of agricultural landsfrom 1896 to 1908 all contributed to inflation. Some observers attrib-uted a 100 percent rise in commodity prices from 1900 to 1904 tothe influx of Americans, noting prices remained virtuallyunchangedin areas where there were no Americans.67Also, after 1905, naturedealt hard, repeated blows to Mexico: floods devastated northernMexico; hurricanes battered the isthmus; and droughts, hail, and frostruined crops in the Bajio, the agriculturalnear-north,forcing Mexicoto spend precious foreign exchange on imported grain, driving upfood prices.6Although so-called leading economic indicators (i.e., increasinglevels of foreign investment) remained strong through 1907, thecurrency shortage crippled Mexico's emerging consumer market thatformed the basis of its successful import substitution in light industry.With the collapse of copper prices in late 1907, unemploymentrippled through northern Mexico, although Cananea, one of thelargest operations, kept employed as manyworkers as possible, usingthe downtime to improve its facilities.69 Even after copper pricesrebounded and the mines reopened in the summer of 1908, eco-nomic recovery was retarded by continuing currency shortages andby the effects of the WallStreet panic which reached Mexico early in1908 (not in 1907 as often reported).In theory, currency levels could have been maintained by increas-ing bank note issues.70 The law permitted banks of issue to circulatebank notes of up to triple their capital. Conservative Mexican bank-ers did increase the issue of notes against diminished cash reserves,but they never approached the legally allowed limits. Instead, theycontinued to tie their bank note issues closely to their specie hold-ings, a tendency reinforced by Limantour's obsession with maintain-ing maximum liquidity, particularlyafter 1907 as the foreign financialmarkets dried up.71Banknotes, however, were a feature of the urbaneconomic landscape; rural residents regarded them with suspicion,country shopkeepers discounted them heavily, and some provincialbanks refused to accept notes from the banks of other states.72

67. PriceRises, MexicanHerald,28 October1904.68. Exchange ndCurrencyCommissionRendersReport o FinanceMinister,MexicanHerald,30 November1909.69. CananeaCopperCompanys a LargeProducer,MexicanHerald, 14July1909.70. SeekingHealth,MexicanHerald,28 February 901; Bankingn Mexico,and TheSafetyof the Banknote,ModernMexico19(August1905):30-31and 18.71. Exchange ndCurrencyCommissionRendersReport o FinanceMinister,MexicanHerald,1 December1909.72. Scarcityf SilverFelt n Oaxaca nteriorTowns, TenderLawsEnforcednOaxaca, nd PaperMoneyPreferred,MexicanHerald,27 March,30 July,and 27September1909.

82



18/24

Schell: Money as CommodityEventually some Mexican legislators called for one central bank ofissue to give the government direct control of the entire moneysupply, coin and bank notes.73 Similarly,an American financier sug-gested using Mexico's gold production (which totaled 22.5 milliondollars in 1910) to back the issue of treasury notes which wouldpermit a commodity market in silver pesos independent of Mexico'smoney supply.74When stress placed on the U.S. system of corresponding banksby the demands of national and international money markets trig-gered the panic of 1907 in the United States, credit everywheretightened. Concerned with maintainingliquidity,Limantoursought topreserve gold bullion reserves in order to influence the exchangemarket. 75The action, combined with the failure of gold coin tocirculate in any case, forced Limantourto resume minting silver coin.Also, since silver's price began to slide in the last months of 1907, themeasure had the added advantage (though a subsidiary one and notof great importance, according to the commission) of increasing thedomestic market for silver.76

Mexico did not expand its money supply sufficiently to improvebar silver prices or to offset the slowdown of foreign investment.With its globally integrated (and globally dependent) financial sectorno longer insulated by its elastic silver currency, the country felt theeffects of Wall Street's panic and struggled with recession throughthe first months of 1909.77

Popular EconomyAlthough the contribution of inflation to the inception of the

Revolution has been frequently discussed, the effect of a scarcity ofcoin has not. By the mid-Porfiriato,all Mexicans operated within amonetary economy. For the upper classes and urbanites accustomedto bank notes and drafts,inflationpinched, but the coin shortage wasmerely an annoyance.78 The disappearance of small silver coin fromcirculation perhaps worked a greater hardship on the poor andworking classes than did inflation. Inflation resulting from the peso's73. WantsGreaterPaperCurrency, exicanHerald,16 October1909.74. Robertson o Diaz,19January1910, CPD,35:1,42-44.75. Lic.PabloMacedo,OfficialReportof the ExchangeandCurrencyCommis-sion to FinanceMinister ose IvesLimantour,eprintedas Exchange ndCurrencyCommissionRendersReport o FinanceMinister,nMexicanHerald,27 November-31 December 1909.76. Ibid.77. Las iete vacasgordasy las siete vacasflacas ElImparcial, 16 November1908. FrederickPalmer,CentralAmerica and Its Problem(New York:Moffat,Yard,andCo., 1910), 19.78. Merchants laimOfficialAbuses, MexicanHerald,25 August1909.

83



19/24

MexicanStudies EstudiosMexicanosdecline (as distinct from inflation originating in economic growth)would have been most pronounced among those groups consumingimports. Although famine necessitated importing grain, its cost wassubsidized by the Diaz regime, and overall, the working class con-sumed few imports. The petty merchant and the emerging middleclass, midlevel purveyors and consumers of imports, endured thegreatest economic distress. This strainon this emerging middle sectoris reflected in the collapse of the Banco Catolico, which was organ-ized to serve them and to mobilize their petty capital by encouragingsavings.79

An upsurge in counterfeiting came on the heels of the 1905reform; the Mexico City police broke up two monedafalsa opera-tions per month.80 In Mayof 1906, the police ended a counterfeitingoperation in Guadalajarasaid to have circulated more than twentythousand fake coins of brass and tin.81 Formerly, counterfeit coinsoften contained a large amount of silver in order to fool a public wellacquainted with the look and feel of the real thing. That so manyfakes of tin and brass circulated suggests a popular acceptance, atsome level, of counterfeiting as a way to cope with currency short-ages which resulted from the massive export of silver coin thatyear.In its official report of 1908, the exchange and currency commis-sion estimated Mexico's visible stock of pesos (those in circulation)to be less than 8.1 million.82By 1909, the demand for factional coin(five, ten, and twenty-five centavo pieces) was so acute that counter-feiters had no trouble passing even the crudest of fakes.83 Thissuspension of disbelief suggests that those accepting moneda falsa(including petty merchants) did so knowingly as an act of defiance,adopting what amounted to the coin of the people. In a sense,counterfeiting was more than an attempt to defraud;it might well beviewed as an urbanform of social banditry,of resistance to a programof state hegemony by both counterfeiters and victims.Limantour originally intended to do away with silver coinagecompletely but, as we have seen, this proved unworkable. The much-

79. Laquiebra del Banco Cat6lico, El Imparcial, 2 December 1905.80. Descubrimiento de una fabrica de moneda falsa, El Imparcdal, 17 No-vember 1905.81. Counterfeitersput 20,000 False Pesos into Circulation, Mexican Herald, 28

May 1906.82. Coinage of New Money, Mexican Herald, 22 December 1909.83. Counterfeiters Raided, Police Raid Another Counterfeit Plant, AmericanCoins used as the Basis of Counterfeit, Industrious Passer of Counterfeit MoneyCaught, and Ghost Protected Counterfeiters, Mexican Herald, 11 and 15 May,30July, 12 and 13 August 1909.

84



20/24

Schell: Money as Commoditytouted civilized money was impractical.84 Far too little gold coinwas struck, especially given the fact that hoarding coin was ingrainedin Mexican economic culture. It has been suggested that the humbleclasses hoarded, rather than spent, the new aristocratic coins, pre-sumably in awe of them, but as my data indicates, the vast majority ofgold coin was held by chartered (and commercial) banks as reserves.Moreover, for the masses, keeping good coin while passing counter-feit was a completely rational response (in the Weberian sense) giventhe general lack of circulating medium. The corrosive effects of thecurrency shortage dogged the regime to its end and became asso-ciated in the public mind with political abuses as well, contributingto rising discontent before the Revolution.85

Political EconomyIn 1907, when Mexico was prosperous, Diaz expressed a per-sonal desire to retire from the presidency. But when his interviewwith James Creelman hit the newsstands in late February of 1908, the

Figure 3: Gold CoinDistribution-Circulationso. 0o0. 00

20.00 -

20. 00 -

10.00 -

?0'001qO Jon r,*' sept OB Jarn May/ Sept 09 Jan May

o = Gold coin held by chartered bankso = Gold coin available to all othersSource: MonetaryCommission Report of 1909 reprintedwith annexes in theMexican Herald, 27 November-31 December 1909.

84. HowMexicoGotHerGoldCurrency, Coinage f New Money, nd Coin-age of Pesos, MexicanHerald,20, 22, and25 December1909.85. Merchants laimOfficialAbuses, MexicanHerald,25 August1909.

85



21/24


22/24

Schell: Money as Commodityico's silver mines with other foreign nationals holding 15 percent.93These two groups, coupled with Mexican allies, controlled the Mex-ican Chamber of Mines, which had lobbied successfully to defeatArticle 144. But they too had a vested interest in the performance ofthe peso. Even in good times, mining engineers estimated that 75 to80 percent of their earnings went to operating costs-primarilywages (which they could no longer pay by minting their own silver)and improvements.94 Thus, as early as 1906, they also campaigned torestore free coinage.95 A spokesman for the Chamber of Mines pro-posed that Mexico purchase its own silver production by coining ituntil a target price of sixty U.S. cents per ounce was reached, effec-tively restoring free coinage but placing it under government control.The way to reduce Mexico's dependence on foreign capital, arguedthe chamber spokesman, was, not by antiforeign laws, but by increas-ing the money supply to end unemployment and create a middle andworking class able to consume, save, and accumulate capital.96 Li-mantour, however, took a hard line, informing the miners that, withthe exception of the peso, the minting of all silver coin, which hecharacterized as a subsidy to them, would cease. He proposed tooffset this with a series of small tax breaks.97

Although Limantour publicly downplayed the monetary originsof the recession, he responded to them through the banking system.He arranged that over 11 million pesos in loans be made to anumber of companies and corporations (one wonders how thesewere selected). The treasury issued gold certificates to encourage93. MarvinD. Bernsteinreportsthat about 90 percent of all Mexicanmineswere foreign-owned:The Mexican Mining Industry,1890-1950: A Study of theInteractionof Politics,Economics and TechnologyAlbany: tateUniversity f NewYorkPress, 1964), 20 and75.94. Testimonyof Nils Baggeand KirbyThomas, n Investigation of MexicanAffairs...SenatorAlbertFall,Presiding,SenateDocument285, 66th Cong.,2d sess.,vol. 1 (Washington:GovernmentPrintingOffice,1919-1920), 1427and 1463;DanielR.Miller, TheFrustration f a MexicanMineunderU.S.Ownership, TheHistorian55, no. 3 (1993): 483-500; andDavidM.Pletcher,Rails,Mines and Progress:SevenAmerican Promoters n Mexico,1867-1911(Ithaca:CornellUniversityPress,1958),the chapteron the operationsof AlexanderR.Shepherdat Batopilas,182-218.95. M.Gadd o Diaz,7 May1906, CPD,31:12,4633-4640.96. ABetterPriceforSilver,MexicanHerald,4 February 909.After he initial5 millionpesos to buythe firstmonth'sproduction,he planwasself-financing,singthe coin from the first month to purchasethe productionof the next. Also, SilverProblems Present NumerousPossibilities, summaryof a WallStreetSummaryarticleby JamesS.H.Umsted,and Prosperity nd Gold' MexicanHerald,25 Sep-tember and 16 October 1909, suggest a lessening of enthusiasm for reform byformerlystrongsupporters.97. Mexico'sFinancialSituation,MexicanHerald,11 and 13January1909.

87



23/24

Mexican Studies / Estudios Mexicanosbanks to release their coin reserves and put them back into circula-tion.98A rediscount bank was created and capitalized at 50 millionpesos by marketingbonds in New Yorkpriced at about 80 percent offace value (at a time when most Mexican bonds opened at betterthan 90 percent). This capital entered the Mexican economy throughthe system of chartered banks dominated by those of Mexico City.99American commercial banks made private arrangements to systema-tize the delivery of American capital into Mexico. The U.S. BankingCompany, controlled by its founder and president George I. Ham andby J.M. Neeland of the Pan-AmericanRailroad Company (in whichMexican Ambassador Creel and his predecessor Casasus had interests,and which would shortly be purchased by U.S. Ambassador DavidThompson) joined Los Angeles capitalists to buy the Bank of South-ern California specifically to facilitate direct American investment inMexico.100The success of these efforts can been seen in American invest-ments of 200 million dollars made from 1909 to 1911 as compared to100 million dollars from 1905 to 1908. By this measure, Mexico'seconomy (with certain exceptions like henequen-dependent Yucatanand silver mining) was in recovery by mid-1909. However, the sig-nificant increase in foreign presence probably added to revolutionarydiscontent coming after many marginal native entrepreneurs hadbeen squeezed out by the recession. Indeed, the idea that the reformhad made Mexico a captive of Wall Street's golden-tentacled octopuswas a common nationalist theme.101 Nor did increased investmentalleviate the shortage of coin which continued to affect the masses.

Unequal access to coin may offer a partial explanation for one ofthe most nagging problems for proponents of the precursor theoryof the genesis of the Mexican Revolution: to wit, the lack of revolu-tionary consciousness among the industrial proletariat, particularlygiven the wave of labor discontent that swept Mexico in 1906.102Peasants, artisans, and shopkeepers locked into traditional (nonex-port) sectors were farmore revolutionarythan the industrialproletar-iat perhaps in part because they suffered more the corrosive effectsof the coin shortage. Workers in the foreign-dominated modern

98. Exchange ndCurrencyCommissionRendersReport o FinanceMinister,MexicanHerald,2 December1909.99. Officersof Rediscount BankElected at Meeting, Mexican Herald, 16October 1908.100. HaveAnotherBank,MexicanHerald,27January1909.101. Forexample,see Emeritode laGarza,r., Mr. ierpontMorgan, aPatria,5 May1908.102. This problemis the heart of AlanKnight'sexposition PopularProtest:Workshop,FactoryandMine n TheMexicanRevolution,1:127-50.

88



24/24

Schell:Moneyas Commoditysectors had seen wage gains, although much diminished in real termsby inflation after 1900. And when coin became scarce, many com-panies issued their own script money. Company stores were oftenthe target of worker riots, but such attacks had more to do with theincivility of clerks and price gouging than with payment in script.'03As the U.S. government's experience with food stamps suggests, it islikely that the circulation of discounted company script helped allevi-ate the coin shortage.What should be the final evaluation of Limantour's reform?If hisgoal was to increase foreign investment, then he failed; from 1905 to1909, American investment increased at its slowest rate after 1893.The dramatic increase in American investment from 1909 was due tostructuralchanges made by the Mexican financial-politicalelite to linkNorth American and Mexican banks more efficiently to prevent arepeat of the 1908 recession. If it was to stabilize the price of thepeso, again failure; his reform fixed the peso at forty-nine U.S. cents,but the commodity market placed it at fifty-six in 1907 and forty-fourin 1909. If it was to send silver coin from Mexico, unravel its eco-nomic fabric, bankrupt its silver miners, and foment unrest, then hesucceeded well.American businessmen and the Porfirianfinancial-political elitebesieged Diaz, reminding him of the sharp drop in Mexican securitiesthat attended his illness some years before and warning that eco-nomic collapse would follow his retirement.104 If Diaz had everintended to retire, this may well have changed his mind. Meanwhile,Francisco Madero and his brothers increased their liquidity by sellingtheir guayule rubber holdings to a Rockefeller-dominated businessgroup-perhaps in response to economic conditions, or possibly toprepare for a no-holds-barred political campaign, or per chance inanticipation of revolution.105

103. John M. Hart,Anarchism and the Mexican WorkingClass, 1860-1931(Austin:Universityof TexasPress,1987),92 andpassim.104. Excerpts fromJames Creelman, PorfirioDiaz: Hero of the Americas,reprintedn NotedDeclarationsMadebyGeneralDiaz,MexicanHerald,28 February1908.105. WilliamSchellJr., IntegralOutsiders,Mexico City'sAmericanColony(1876-1911): Societyand PoliticalEconomy n PorfirianMexico Ph.D. diss., Uni-versityof NorthCarolina,ChapelHall,1992),507.

89

schell, william

Documents