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Paper prepared for:
“Understanding the Institutional Trajectory of Latin American Development”
a conference organised by Dr. María Alejandra Irigoin
Department of Economic History, London School of Economics & Political Science
27th-28th September, 2012.
Panel: Institutions, Policy and the International Economy, Friday, 28th September, 2012
‘Economy, Policy and Polity: reflections on the political economy of development in Latin
America c.1920’
Colin M. Lewis (LSE)
Preliminary draft: please do not quote.
‘Economy, Policy and Polity: reflections on the political economy of development in Latin
America c.1920’1
Colin M. Lewis
However, two world wars and the Great Depression of 1929 provided Latin
America with opportunities as well as threats: it is no accident that this was
the only period of the 20th century when Latin America grew significantly
2
more rapidly that the world average.
In the quotation above, Rosemary Thorp reflects upon W. Arthur Lewis’ seminal account of
the 1913-1939 period, which he depicts as the ‘age of dislocation’ and an ‘age of
experiment’.3 Accepting that, unlike Europe and parts of Africa and Asia, the continent was
not a theatre of conflict, and assuming a process of learning-by-doing, these views suggest
that macroeconomic management played a role in the exceptional performance of the Latin
American economies during the inter-war decades. This paper seeks to contribute to the
coming body of work on economic organisation and policy during the years between the two
World Wars, assessing the nature of change from a policy perspective. What were the
openings and opportunities for change, and the organisational and institutional bases required
to implement change? Indeed, were there such constructive options among the obvious
challenges? Recognising the distinctness of chronologies across the continent, and the need
to sub-periodise, the paper will also speculate about the integrity of the period as a whole.
Was 1929/30 such an important divide everywhere; to what extent were post-1930 initiatives
clearly prefigured in events and processes of the 1920s?
The paper opens with a short survey of the literature and stylised chronology. The objective
being to identify main currents - old and new - in the historiography, and provide a
benchmark periodisation. Particular reference will be made to the endowments-versusinstitutions conundrum and perspectives on the 1929/30 watershed. The paper will then
explore two specific areas of policy, money and the tariff. What the paper lacks is an indepth analysis of the policymaking elite. The intellectual formation of the policymaking
elite, as well as changes to its social composition are clearly important, possibly even more
significant than the administrative apparatus (agencies and ministries) charged with policy
formulation and implementation. This is significant omission, and a field which requires
further research.
Shocks and Policy: a stylised chronology and overview of the literature
1
2
3
I am indebted to María Alejandra Irigoin for identifying recent theoretical
contributions to the economic literature about state capacity and policy
application.
Thorp, Rosemary Progress, Poverty and Exclusion: an economic history of
Latin America in the 20th century (Washington DC: Inter-american
Development Bank/Johns Hopkins University Press 1998) p.97.
Lewis, W. Arthur Economic Survey, 1913-1939 (London: Allen & Unwin,
first ed. 1949).
It is generally accepted that the World Wars represented a supply shock for most of Latin
America, and the inter-war Depression a demand shock. Equally, it is accepted that the
timing of the impact of these external shocks, and the pace and nature of recovery from them
differed, variations largely determined by endowments and state capacity. Obvious
differences in terms of impact and recovery are known from established general works like
those by Furtado, Cardoso and Faletto, Cardoso and Pérez Brignoli, and more recent
contributions such as those by Thorp, Cárdenas and Ocampo, and Bulmer-Thomas, as well as
seminal country- and period-specific studies as those by Diaz-Alejandro and Albert. Impact,
particularly as regards war-time shocks, was largely conditioned by resources and geography
(commodities and export markets), while recovery more associated with state capacity - an
element likely to be endogenously determined.4
4
Furtado, Celso Economic Development of Latin America: historical
background and contemporary problems (Cambridge: CUP, Second Edition
1976); Cardoso, Fernando H. & Enzo Falletto Dependency and Development
in Latin America (Berkeley: University of California Press 1979); Cardoso,
Ciro F. & Héctor Pérez Brignoli Historia econónomica de América Latin: Vol.
II: economias de exportación y desarrollo capitalista (Barcelona: Crítica
1979); Bulmer-Thomas, Victor The Economic History of Latin America since
Independence (Cambridge CUP 1994); Thorp, Rosemary, Thorp, Enrique
Cárdenas & José Antonio Ocampo (eds.) An Economic History of Twentiethcentury Latin America: Vol. I: the Export Age: the Latin American economies
in the late nineteenth and early twentieth centuries (London:
Palgrave/Macmillan 2001) and An Economic History of Twentieth-century
Latin America: Vol. III: Industrialisation and the State in Latin America: the
postwar years (London: Palgrave/Macmillan 2001); Diaz-Alejandro, Carlos F.
‘Stories of the 1930s for the 1980s’ in Pedro Aspe Armella, Rudiger Dornbush
& Maurice Obstfeld (eds.) Financial Policies and the World Capital Market:
the problem of Latin American countries (Cambridge, Mass: National Bureau
of Economic Research 1983), pp.1-35 and ‘Latin America in the 1930s’ in
Rosemary Thorp (ed.) Latin America in the 1930s (London: Macmillan 1984),
pp.17-49; Albert, Bill South America and the First World War: the impact of
the war on Brazil, Argentina, Peru and Chile (Cambridge: CUP 1988). The
Furtado classification of the Latin American economies is based on the
commodity export base - temperate agricultural produce, tropical agricultural
produce and mineral produce - which resulted in market and state
configurations ranging from the ‘democratic’ to the ‘extractive’, though he
does not use these precise terms. Cardoso & Faletto and Cardoso & Pérez
Brignoli refine this categorisation from more obviously institutionalist
perspectives. Cardoso & Faletto, in particular, emphasis the importance of a
retention of control of assets (or of income streams generated by the
production and commercialisation of commodities), associating national
capitalist development with domestic entrepreneurial talent and/or state
capacity. For a more extensive review of these and related texts, see: Abel,
Christopher & Colin M. Lewis ‘General Introduction’, ‘The Classic Age of
Imperialism: introduction’ and ‘The Era of Disputed Hegemony: introduction’
in Abel, Christopher & Colin M. Lewis (eds.) Latin America: economic
imperialism and the state (London: Athlone 1985), pp1-25, 175-83 and 26987, and Lewis, Colin M. & Wilson Suzigan ‘Industry and Industrialisation in
Latin America: in pursuit of development’ Cuadernos de Historia
A considerable part of new writing on the inter-war period is influenced by the states versus
markets discussion associated with the now not-so-new economic institutionalism and the
increasingly shrill endowments versus institutions ‘dialogue’. This is hardly surprising given
the intra-Americas focus of key early comparative assessments, work that triggered a
response from scholars of Latin America and it absorption by others seeking to advance a
broader institutionalist agenda to explain why some countries are rich and others poor.5 It is
worth recording that the current endowments-or-institutions debate was prefigured in earlier
seminal texts that now tend to be ignored. As suggested in the note below, broad surveys and
syntheses such as those by Furtado foreshadowed the ‘new’ concern with commodities and
the connexions between endowments and institutions. Although the language and ideology
5
Latinoamericana VIII (2000) pp.1-4.
For various iterations of the Engerman & Sokoloff hypothesis, that present
and refine an endowments approach to growth, arguing that geography and
natural conditions primarily determined institutional formation and access to
resources and opportunities, with the development of their approach captured
in the re-titling of the pieces, see Engerman, Stanley L. & Kenneth L. Sokoloff
‘Factor Endowments: Institutions, and Differential Paths of Growth among
New World Economies: a View from Economic Historians of the United
States’ National Bureau of Economic research (NBER) Historical Working
Paper, No.66 (1994), ‘Factor Endowments, Inequality and Paths of
Development among New World Economies’ NBER Working Paper No.9259
(2002), ‘Colonialism, Inequality and Long-run Paths of Development’ NBER
Working Paper No.11057 (2005) and ‘Paths of Development: an overview’ in
(with assistance from Stephen Haber, Elisa Mariscal & Eric Zolt) Economic
Development in the Americas since 1500: endowments and institutions (New
York: CUP 2012) pp.9-30. Responding to earlier criticisms, Engerman and
Sokoloff further qualify their approach in the 2012 version, accepting that
institutional ‘imports’ and outcomes may have been more diverse than they
initially acknowledged, while continuing to hold that resource endowments,
broadly defined, determined patterns of growth, equality/inequality and
institutional dynamics. For examples of responses by historians of Latin
America that question the historical robustness of Engerman & Sokoloff, not
least about the nature of colonialism, nature of resources and institutional
trajectories see: North, Douglass C., William R. Summerhill & Barry R.
Weingast ‘Order, Disorder and Economic Change: Latin America versus
North America’ in Bruce Bueno de Mesquite & Hilton Root (eds.) Governing
for Prosperity (New Haven: Yale University Press 2000) pp.17-58;
Coatsworth, John H. ‘Structures, Endowments and Institutions in the
Economic History of Latin America’ Latin American Research Review XXXX
3 (2005) pp.126-44 and ‘Inequality, Institutions and Growth in Latin America’
Journal of Latin American Studies XXXX 3 (2008) pp.545-69 - for
Coatsworth, ‘ ... the Engerman and Sokoloff thesis, while plausible, is almost
certainly wrong.’ (2005) p.139; and meticulously researched imaginative
pieces that shed new light on institutions, assets and resource distribution by
Grafe and Irigoin, Grafe, Regina & M. Alejandra Irigoin ‘Bargaining for
Absolutism: a Spanish path to Nation-state and Empire building’ Hispanic
American Historical Review LXXXVIII 2 (2008) pp.173-210 and ‘A
Stakeholder Empire: the political economy of Spanish imperial rule in
America’ Economic History Review LXV 2 (2012) pp.609-51.
were distinct, pioneering work by Cardoso and Faletto and others do not neglect the
institutional. Glade provides an excellent, wide-ranging narrative and interpretive survey that
was explicitly institutional in focus, albeit of the ‘old’ institutionalist school.6 Published as
dependency approaches were poised to eclipse structuralism to become the near-dominate
paradigm framing the social science and history research agenda for Latin America, Glade’s
work was unfortunate in its timing, though direct in its titling.
Returning to writing explicitly about the inter-war decades, and acknowledging the influence
of the states/markets and endowments/institutions controversies, much scholarship still tends
to reinforce an established chronology by focussing on the 1929/30 watershed, even while
depicting the period as one of transition between the old export-led growth order and state-led
development. In part, this may be explained by the enduring influence of earlier radical
(structuralist and dependency) depictions of 1930 as marking the ‘industrial take-off’ of Latin
America (to impose distinctly no-radical terminology on that literature), despite the
‘discovery’ of manufacturing before 1930 by institutionalists and others, a rediscovery that
acknowledges a debt to the trail-blazing work of Warren Dean on São Paulo and, to a lesser
extent, Glade.7
A continuing emphasis on 1929/30 as rupture tends to deflect attention from the enduring
influence of economic orthodoxy, and/or expressions of a continuing commitment to
orthodoxy. Despite increased volatility in world markets in the 1920s, associated in part with
deflation in Britain and a shift from multilateralism to bilateralism, low international liquidity
in the 1920s and near cessation of capital inflows in the 1930s, when the region became a net
capital exporter, and the abandonment of gold, economic orthodoxy continued to influence
the official mind and strategic decision-making until quite late in the period. Given the
importance of commodity production, common assumptions that the crisis was temporary,
and efforts by Washington to impress upon policymaking elites of the Latin America the
benefits of economic openness, this was probably inevitable. Only after the mid-1930s was
there a general repudiation of orthodoxy, though even then tempered by recourse to the old
rhetoric and ‘liberal’ policy opportunism.
6
7
Glade, William P. The Latin American Economies: a study of their
institutional evolution (New York: American Book Company/Van Nostrand
1969).
Dean, Warren The Industrialization of São Paulo, 1880-1945 (Austin:
University of Texas Press 1969). For examples of country studies directly or
indirectly indebted to Dean, see Suzigan, Wilson Indústria brasileira: origem
e desenvolvimento (São Paulo: Brasiliense 1986) and Haber, Stephen Industry
and Underdevelopment: the industrialization of Mexico, 1890-1940 (Stanford:
Stanford University Press 1989); and for syntheses Lewis, Colin M. & Wilson
Suzigan ‘Industry and Industrialisation in Latin America: in pursuit of
development’ Cuadernos de Historia Latinoamericana VIII (2000) pp.227316, Salvucci, Richard ‘Export-led Industrialization’ in Bulmer-Thomas,
Victor, John H. Coatsworth & Roberto Cortés Conde (eds.) The Cambridge
History of Latin America: Vol. II: the long twentieth century (Cambridge:
CUP 2006) pp.249-92 and Haber, Stephen ‘The Political Economy of
Industrialization’ Bulmer-Thomas, Victor, John H. Coatsworth & Roberto
Cortés Conde (eds.) The Cambridge History of Latin America: Vol. II: the
long twentieth century (Cambridge: CUP 2006) pp.537-84.
As argued below, although still insufficiently recognised, there were important changes in the
organisation and structure of the state during the inter-war decades as a whole, including the
1920s, while policy shifts in the 1930s were more subtle than depicted in early structuralist
and dependency accounts. And states grew during the period. The extent to which an
increase in the size of the state implied greater competence remains a matter of debate.
Accepting that information about government employment and share of GDP, data normally
used to measure the scale or weight of the state, is fragmentary, and that there were profound
differences in outreach, capacity and competence across the continent, literature on the
structure of administration points to expansion and diversification. Confirming that
proportional expansion tended to occur after 1960s, Whitehead identifies difficulties in
charting and evaluating the growth of the state before the middle of the twentieth century.8
Yet, as he shows, administrations were minuscule by modern standards: governments
employed 0.8 percent of the total population of the continent in 1925 and around 1.1 percent
in 1950, and there were considerable variations among countries, with state bureaucracies
(including workers employed in public enterprises) tending to be considerably larger at midcentury in the Southern Cone countries and Cuba and Venezuela than elsewhere.9
Hence states tended to be small, even at the end of the period, and extractive capacity (share
of GDP capture by government) limited. Most of the modern literature about the emergence
of the fiscal state is drawn from the experience of Europe, indebted to the pioneering work of
North and Thomas. They identify Holland and England (notably post-1688 England) as
successful examples of efforts to expand state income through fiscal extraction by consent
and a sustainable growth of public debt.10 Defining the fiscal state as one that is able to
translate a flow of tax revenue into manageable borrowing, Daunton dates the appearance of
the modern state somewhat later. In 1815 Europe, only Britain was a fiscal state.11 O’Brien,
who takes issue with North and Thomas, questioning the preciosity and near and uniqueness
that they attribute to the post-1688 English state, extends this argument and data. He
estimates that the British state captured about 15 percent of national income in 1700, rising to
around 30 percent by 1810, at the height of the Napoleonic Wars.12 With a fiscal take barely
in double figures for much of the period, this was a rate of extraction to which states in Latin
America could only aspire, and hardly achieve, even in the late twentieth century, when the
pace of fiscal reform continues to disappoint.13
8
9
10
11
12
13
Whitehead, Laurence ‘State Organisation in Latin America since 1930’ in
Leslie Bethell (ed.) The Cambridge History of Latin America: Vol. VI, Pt.2:
1930 to the present (Cambridge: CUP 1994), p.33.
Whitehead, Laurence ‘State Organisation in Latin America since 1930’ in
Bethell, Leslie (ed.) The Cambridge History of Latin America: Vol. VI, Pt.2:
1930 to the present (Cambridge: CUP 1994), pp.33-5.
North, Douglass C. & Robert P. Thomas The rise of the Western World: a new
economic history (Cambridge: CUP 1973) Part III.
Daunton, Martin J. Trusting Leviathan: the politics of taxation in Britain,
1799-1914 (Cambridge: CUP 2001) pp.4-5.
O’Brien, Patrick K. ‘The Political Economy of British Taxation, 1660-1815’
Economic History Review XXXXI 1 (1988) pp.1-32, and (with Philip A.
Hunt) ‘England, 1485-1815’ in Richard Bonnet (ed.) The Rise of the Fiscal
State in Europe, c.1200-1815 (New York: OUP 1999) pp.53-100.
Bulmer-Thomas, Victor The Economic History of Latin America since
Independence (Cambridge: CUP 2003), pp.406-7.
Drawing on Besley and Persson’s concept of the ‘fiscal dimension’ of the state, whereby
ability to tax is viewed as a function of investment in bureaucratic capacity, Cárdenas
confirms the relative and absolute ‘fiscal backwardness’ of states in Latin America as late as
the early twenty-first century. Acknowledging a debt to Acemoglu, Johonson and Robinson,
he explains this backwardness in terms of the high concentration of economic and political
power. Historically, elites in Latin America were unwilling to invest in state capacity
enhancement and/or to tax themselves.14 Perhaps this explains Chilean exceptionalism.
Export taxes, deriving from nitrate rents, financed the construction of a well-developed state
structure and a strongly centralised and effective administration, and national consciousness
facilitated by early substantial investment in public education.15 Arguably, Cárdenas tends
to downplay innovative fiscal measures of the inter-war period, including income tax,
multiple exchange rates and tariffs.
Despite these limits, administrative structures thickened, especially in the economic and
social spheres. Along with others, Drake has charted the emergence of modern central
banking (or embryonic monetary authorities), drawing attention to institutional consolidation
and the ideological underpinnings of developments in the 1910s and 1920s, as much as the
1930s.16 Drake, in particular examines the changing rational behind developments in the
financial sector, and the capacity of monetary/financial policymakers. Other examples of
state economic and social organisational change are less well studied for the period, but
include key agencies like commodity boards and tax institutes, as well as social ‘ministries’
responsible for education, health, pensions and labour. The proliferation of such bodies was
often associated more with internal pressures and lobbying, though not unconnected with
volatility in the international economy. For example, and accepting that its powers were
substantially increased in 1933 and its remit extended to cover all cereals, the Grain Board
(Junta Reguladora de Granos, subsequently the Junta Nacional de Granos) derived from the
Wheat Commission established in the Argentine in 1926, created in response to the clamour
of farmers confronted by softening cereal prices on the world market and rising domestic
production costs. The Board could also trace its origins back to the monopsonistic Cereal
Export Buying Agency established by the Argentinian government during the First World
War to handle sales to the Allies. This model of cereal price support/control was expanded in
the 1930s to cover several key staples sold on the national and world markets. The most
audacious case of commodity price intervention, of course, was that provided by the Coffee
Board created in Brazil in 1906.17 Although subsequent Brazilian coffee support schemes
14
15
16
17
Cádenas, Maurício ‘State Capacity in Latin America’ Economía X 2 (2010)
pp.1-45, esp. pp.3-10. See also, Centeno, Miguel Blood and Debt: war and
the nation-state in Latin America (University park: Pennsylvania State
University Press 2002) and López-Alves State Formation and Democracy in
Latin America (Durham, N.C.: Duke University Press 2000).
Whitehead, Laurence ‘State Organisation in Latin America since 1930’ in
Bethell, Leslie (ed.) The Cambridge History of Latin America: Vol. VI, Pt.2:
1930 to the present (Cambridge: CUP 1994), pp.19-20.
Drake, Paul W. The Money Doctor in the Andes: the Kemmerer Missions,
1923-1933 (Durham N.C.: Duke University press 1989) and ‘La creación de
los bancos centrales en los países andinos’ in Pedro Tedde & Carlos Marichal
(eds.) La formación de los bancos centrales en España y América Latina
(siglos IXI y XX): Vol. II: Sudamérica y el Caribe (Madrid: Banco de España
1994), pp.85-101.
An informative, descriptive historical account of valorisation, including details
were quite different, the initial valorisation project demonstrated the ability of local agents to
organise an arrangement, with international funding, that delivered what was demanded of it price stability in a volatile market. It was an administratively complex, carefully managed,
commercially successful operation. The proliferation of systems of commodity price support
in Latin America and elsewhere during the 1930s has tended to obscure the pioneering role of
entities like coffee valorisation in Brasil and cereal price support in the Argentine,
arrangements that were originally self-financing. And, many boards were ephemeral,
considerably less permanent features of the landscape of the state than central banks and
‘social’ ministries.
Recognising the impact of later developments, another area of under-recognised state growth
relates to social agencies. Again, this may be due to the greater prominence of such
organisation after the 1940s. Acknowledging the existence of earlier precedents, historians
now tend to the view that there is solid evidence that governments were becoming involved
in the formation of modern social security agencies in the 1920s. Most sources accept that,
pre-dating centralisation and increased statisation of the system during the Estado Nôvo, the
Eloi Chaves Law of 1923 marks the beginning of organised, institutionalised social insurance
in Brazil, albeit first constructed on a private-sector individual enterprise basis. Similarly,
and notwithstanding official Peronist rhetoric, modern institutionalised social protection in
the Argentine originated in sectoral occupational schemes set up during the first decades of
the twentieth century, and that the massive growth of the system after 1946 was modelled on
a project to establish a ‘national’ system of retirement pensions for virtually all categories of
non-rural workers in the early 1920s. Other pioneer countries include Chile, Costa Rica,
about the organisation of the scheme, is provided by Holloway, Thomas H.
The Brazilin Coffee Valorization of 1906 (Maddison: University of Wisconsin
1975, with an economistic assessment offered by Delfim Netto, Antonio O
problema do café no Brasil (São Paulo: Ed. UNESP, 3rd ed. 2009). An
institutionalist, comparative analysis of various Brazilian price support
schemes is delivered by Bates, Robert H. Open-economy Politics: the political
economy of the world coffee trade (Princeton: Princeton University press
1997). The most comprehensive examination of the context and operations of
the initial valorisation scheme and is successors is given by Bacha, Edmar and
Robert G. Greenhill 150 anos de café (Rio de Janeiro: Marcellino Martims &
Johnson 1992), while Topik, Steven C. The Political Economy of the Brazilian
State, 1889-1930 (Austin: University of Texas Press 1987), as the title
suggests, presents a political economy assessment that has stood the test of
time. An authentic, blow-by-blow (sceptical) assessment of the contemporary
coffee crisis and efforts of combat it remains Hutchinson, Lincoln ‘Coffee
“Valorization” in Brazil’ Quarterly Journal of Economics XXIII 3 (1909),
pp.528-35. Hutchinson concludes, p.535, : ‘It is safe to say that the coffee
industry will not resume a normal and thoroughly satisfactory condition until
the planters resolve to stand on their own feet. This will involve the
introduction of better methods all along the line, the closer watching of
production costs, willingness to accept lower profits compared to those of ten
or fifteen years ago, and the elimination of the weaker producers.’ Perceptive
as it was, this assessment probably better applies to the system of ‘permanent
defence’ of coffee introduced in the 1920s than pre-Fist World War
valorisation’, and neglects broader Keynesians affects, particularly in the
1930s.
Cuba and Uruguay, where recognisably modern arrangements were in place - or being put in
place - in the 1920s.18
Yet another area of state engagement in the provision of ‘economic’ public goods that
expanded in the early decades of the twentieth century was represented by railways and
utilities. Governments had played a major role in railway promotion and operation in a
number of countries from the first, with state systems often predominating. However, in
those economies where the private sector prevailed, an enhancement of the state presence can
be observed. For example, the nationalisation of Mexican railways, completed in 1937/8,
began in 1905.19 Although only finalised with the purchase of London-registered companies
after the Second World War, a state presence in the railway sector in Uruguay began with the
purchase (arguably state ‘bailout’) of the Northern Tramway and Railway Company Limited
in 1914. Indeed, the administrations of José Batlle y Ordóñez (1903-7 and 1911-15) were
associated with a large-scale expansion of government involvement in the economy
(including banking and insurance, power generation and distribution, and manufacturing, in
addition to railways), as well major advances in social legislation, for example, provision for
an eight-hour working day and unemployment benefits, measures prefiguring the
establishment of the first ‘welfare state’ in Latin America.20
The substantive impact of state ‘advances’ mentioned above is open to question. Many
initiatives were piecemeal. Others were little more than token. Yet some were significant.
Less debatable is the importance attached by contemporaries - ideologues, policymaker and
potential beneficiaries - in the 1920s and 1930s to government intervention in sectors like
banking, social insurance, labour legislation and transport. These initiatives were pragmatic,
arguably more so than those of the cepalista decades of import-substituting industrialisation
decades. As Love has argued for ideologies and policies associated with the
developmentalism and import-substituting industrialisation, measures of the 1940s and 1950s
were prefigured in the 1930s.21 This paper maintains that a number of these post-1940s
18
19
20
21
Lewis, Colin M. & Peter Lloyd-Sherlock ‘Social Policy and Economic
Development in South America: an historical approach to social insurance’
Economy and Society XXXVIII 1 (2009), pp.109-31; Arza, Camila & Paul
Johnson ‘The Development of Public Pensions from 1889 to the 1990s’ in
Gordon Clark, Alicia Munnell & Mike Orszag (eds.) Oxford Handbook of
Pensions and Retirement Incomes (Oxford: OUP 2005), Chapter IV; MesaLago, Carmelo Reassembling Social Security in Latin America: a survey of
pensions and healthcare reform in Latin America (New York: OUP 2008).
For a succinct, perceptive assessment and contextualisation of the origin and
development of systems of social protection in Latin America, see; Arza,
Camila ‘Distributional Impacts of Social Policy: pension regimes in Argentina
since 1944’, unpublished PhD dissertation, London School of Economics &
Political Science, 2004, pp.24-66.
Bach, Frederico ‘The Nationalisation of the Mexican Railways’ Annals of
Public & Co-operative Economics XV 1 (1939), pp.70-93.
Hudson, Rex A. & Sandra W. Meditz Uruguay: a country study (Washington
DC: GPO/Library of Congress 1990). See section ‘The New Country: Batlle
Ordóñez and the modern state’.
Love, Joseph L. ‘Economic Ideas and Ideologies in Latin America since 1930’
in Leslie Bethell (ed.) The Cambridge History of Latin America: Vol. VI, Pt.1:
1930 to the present (Cambridge: CUP 1994),pp.393-460. As Love writes,
initiatives were rooted in developments of the 1920s, as much as the 1930s, and that the
exponential growth of the state during and after the 1940s has overshadowed, or disguised,
institutional and policy experiments of the 1920s as well as the 1930s. State organisational
proliferation during the period, ranging from state banks (including central and protodevelopment banks) to commodity boards, to social insurance agencies and labour ministries
may be interpreted as a response to broadening domestic political demands, as much as
external shocks, as well as signalling a sense of administrative competence even if not
substantive capacity. Moreover, even if some of these bodies and agencies set up in the
1920s and 1930s were intended as cosmetic or token, their creation provided platforms for
interests committed to greater government involvement in the economic and social realms.
Incremental accretions to the state apparatus, and changes in the ideological climate, coupled
with a knowledge of what was happening elsewhere, may account for responses to the
opportunities noted by Thorp, as well as with regard to the timing of shifts in ‘policy
regimes’. There was, too, the inter-dynamics of shock, action and learning by doing, and
differences between passive and reactive states noted by Díaz Alejandro.22 These and
others factors determined both the timing and phasing of shocks - and opportunities, and
policy efforts.
It is now well established that endowments shaped the initial impact of the First World War,
as the Second. Although the financial and commercial supply shock was similar for all
countries, as international liquidity dried up, international banks tightened credit and called in
loans, as shipping was disrupted and, subsequently, belligerents geared production to the war
effort, in the medium-term countries exporters of strategic commodities like cereals, wool,
meat, sugar, nitrates, metals and petroleum faced a positive external environment in contrast
to producers of non-priority commodities like coffee. Even if supply constraints did not
immediately ease, export prices and earnings rose despite contraction in volumes as the
Allied blockage and black-listing reduced sales to the Central Powers. Trading partners also
modulated the impact of the external shock. Countries with stronger trading links with the
USA than western and central European economies benefited from the neutral stance of
Washington, and late gearing of the US economy to the war effort. Intra-South American
trade and, to a lesser extent, the development of links with new trade partners like Japan,
sometimes served to take the edge off the import supply shock after c.1916. Given the earlier
entry of the USA, and greater global spread of the conflict into diverse theatres, a number of
palliatives available in the First World War were not available after 1939, though the impact
on commodity prices was similar.23
22
23
p.395: ‘Industrialisation in Latin America was fact before it was policy, and
policy before it was theory.’
Diaz-Alejandro, Carlos F. ‘Latin America in the 1930s’ in Rosemary Thorp
(ed.) Latin America in the 1930s (London: Macmillan 1984), pp.17-49.
Albert, Bill South America and the First World War: the impact of the war on
Brazil, Argentina, Peru and Chile (Cambridge: CUP 1988; Abreu, Marcelo de
Paiva ‘Anglo-Brazilian Economic relations nd the Consolidation of American
Pre-eminence in Brazil, 1930-1945’ in Christopher Abel & Colin M. Lewis
(eds.) Latin America: economic imperialism and the state (London: Athlone
1985) pp.379-93, and ‘Argentina and Brazil during the 1930s: the impact of
British and US international economic policies’ in Rosemary Thorp (ed.) Latin
American in the 1930s: the role of the periphery in world crisis (London: St
Antony’s/Macmillan 1984) pp.144-62; Fodor, Jorge & Arturo O’Connell ‘La
If a number economies were beginning to stabilise around 1916, this was partly due to the
positive endowment/export scenario encountered by some, though elsewhere probably due to
state capacity-cum-policy pragmatism. Brazilian ‘monetary authorities’, with considerably
more experience of managing a paper standard and ‘massaging’ the anxieties of foreign
underwriters and creditors than their counterparts in a number of republics appear to have
taken a ‘relaxed’ attitude to exchange depreciation and monetary expansion comparted to
Argentinian policymakers.24 Indeed, and as argued below, monetary authorities in Buenos
Aires displayed a greater attachment to orthodoxy than those in Rio de Janeiro, even during
the ‘scramble’ to return to normalcy in the 1920s. Monetary policymakers may also have
learnt the lessons of the pre-1914 ‘classic’ Gold Standard Era, namely that pragmatism (aka
temporary suspension and growth in money supply) might be tolerated by the markets in the
short-to-medium-term, provided there was evidence of a credible commitment to a return to
gold when circumstances permitted - and the good offices of a ‘parent’ or ‘patron’ bank’
undoubtedly helped.25 It is thus instructive that when, in 1926, Brazil ‘returned’ to the Gold
(Exchange) Standard, it was at a lower gold parity than that which had applied at the time of
24
25
Argentina y la economía atlántica en la primera mitad del siglo XX’
Desarrollo Económico XIII (1973), pp.1-67.
Villela, André A. ‘The Political Economy of Money and Banking in Imperial
Brazil, 1850-1870’, University of London, unpublished PhD dissertation,
University of London, 1999; Weller, Leonardo ‘When Banks Rescued
Governments: debt crises and sovereign-creditor relations in Brazil and
Mexico, 1888-1914’, unpublished PhD dissertation, London School of
Economics & Political Science, 2011.
For a discussion of variants of the Gold Standard regime (particularly in
peripheral economies), currency ‘experimentation’, credible commitment and
‘parent’ banks, see Bordo, Michael D. & and Rockoff ‘The Gold Standard as a
“Good Housekeeping Seal of Approval”’ Journal of Economic History LVI 2
(1996) pp. 389-428; Obstfeld, Maurice & Alan M. Taylor ‘Sovereign Risk,
Credibility and the Gold Standard: 1870-1913 versus 1925-31’ The Economic
Journal CXIII 487 (2003) pp. 241-75; Morys, Matthias ‘The Emergence of the
Classical Gold Standard’ CHERRY Discussion Paper 12/01 (2012) pp.1-52;
Flandreau, Marc ‘Crises and Punishment. moral hazard and the pre-1914
International Financial Architecture’ in Marc Flandreau (ed.) Money Doctors.
The Experience of International Financial Advice, 1850–2000. (London:
Routledge 2003) pp.13-48; Flandreau, Marc and Juan H. Flores ‘Bondholders
vs. bond-sellers?: investment banks and conditionality lending in the London
market for foreign government debt, 1815-1913’ European Historical
Economics Society Working Paper 2011 - 0002, pp.1-41; Irigoin, María
Alejandra ‘Finance, Politics and Economics in Buenos Aires, 1820-1860: the
political economy of currency stabilisation’, unpublished PhD dissertation,
University of London, 2000 ; Tuncer, Coskun ‘Fiscal Autonomy, Monetary
regime and Sovereign Risk: foreign borrowing and international financial
control in the Ottoman Empire, Greece and Egypt during the classic Gold
Standard era’, unpublished PhD dissertation, London School of Economics &
Political Science, 2011; Weller, Leonardo ‘When Banks Rescued
Governments: debt crises and sovereign-creditor relations in Brazil and
Mexico, 1888-1914’, unpublished PhD dissertation, London School of
Economics & Political Science, 2011.
suspension in 1914, while the Argentine returned in 1927 at the same level as prevailed in
1914.
The nature of the ‘return’ to gold in the 1920s, as well as the timing of return, signalled a
commitment to orthodoxy and expectations that the pre-1914 international order could/would
be restored - that conditions were (or might be) the same as before. Hence ‘excessive’
orthodoxy in some quarters, and a mix of orthodoxy and pragmatism in others. A ‘pathdependent’ commitment to orthodox monetary and commercial practices on the part of
Argentinian policymakers for much of the inter-war decades may be traced to the monetary
chaos of the late 1880s, culminating in spiralling inflation and collapse of the exchange rate
after 1889. Brazilian officials, with longer experience of operating a paper money standard
and, critically, enduring relations with a patron bank (that involved ‘policy sharing’), had
greater confidence in their ability to engage in modest policy experiment and contend with
external financial and commercial pressures (or play-off external interests one against the
other). Either that, or they were less able to resist political pressure to inflate.26
For countries with relatively easy access to US markets and Wall Street in the 1920s, there
was a sense of pre-1914 ‘normalcy’ in international commercial and financial relations from
approximately 1923 until 1927/8. The ‘golden age’ of export-led growth appeared to have
returned for exporters of some tropical agricultural commodities and non-ferrous metals and
petroleum. These favour economies encountered a commodity export boom, an import surge,
buoyant fiscal accounts and plentiful external credit. Yet, by the middle of the decade, most
economies experienced favourable international trading conditions, circumstances that
facilitated currency and banking reform, as indicated above, and renewed confidence in the
international monetary order. Although this came to an end with the 1929/30 crash, as during
the First World War, there was no still no general sense that the prevailing system had come
to an end and, despite differences in timing and policy effectiveness, a belief that the old
order might be restored. Only slowly was ‘liberalism’ displaced by ‘nationalism’.27 Chile
may have been an exception, given the crisis in natural nitrate production due war-induced
increases in the output of synthetic substitutes. Chilean economics and politics were
decidedly ‘messy’ in the 1920s, as much as the 1930s.28 Elsewhere, the pace of retreat from
26
27
28
Moura, Gerson Autonomia na dependêcia: a política externa de 1935 a 1942
(Rio de Janeiro: Nova Fronteira 1980) and Sucessos e ilusões: relações
internacionais do Brasil durante e apóis a segunda guerra mundial (Rio de
Janeiro: FGV 1991). Moura maintains that Brazilian diplomacy, particularly
in the field of international economic policy implementation, was effective
and independent as well as adventurous, compared to the Argentinian. Abreu
questions the degree of autonomy/independence available to Brazil, though
not necessarily the competence of Brazilian officials, stating that pragmatism
was only possible within limits set or tolerated by the US Department of State.
Whitehead, Laurence ‘State Organisation in Latin America since 1930’ in
Bethell, Leslie (ed.) The Cambridge History of Latin America: Vol. VI, Pt.2:
1930 to the present (Cambridge: CUP 1994), pp.10-13.
Palma, J. Gabriel ‘External Disequilibrium and Internal Industrialisation’ in
Christopher Abel & Colin M. Lewis (eds.) Latin America: economic
imperialism and the state (London: Athlone 1985), pp.318-38, and ‘From an
Export-led to and Import-substituting Economy; Chile, 1918-1935’ in
Rosemary Thorp (ed.) Latin American in the 1930s: the role of the periphery
in world crisis (London: St Antony’s/Macmillan 1984) pp.50-80; Monteón,
economic orthodoxy and embracing of pragmatism was phased, discontinuous and far from
uniform.
Again, endowments in the form of the commodity lottery was a crucial factor shaping
economic performance. As Díaz Alejandro writes: the ‘performance of individual countries
was also marked by good or bad luck in the “commodity lottery” as well as by attempts at
export promotion or diversification even under the gloomy conditions of the 1930s.
Examples of export gains after 1933, with good fortune and policy efforts playing different
toles, include the cases of Peruvian and Colombian gold, Mexican silver ... Argentine corn
and fruits, Brazilian cotton and Venezuelan oil.’29 As already indicated, export supportcum-promotion was on the policy agenda well before the inter-war crisis. Yet the initial
assessment of price collapse in the case of commodities as distinct as cereals and coffee
around 1928-30 was of a cyclical, not structural, phenomenon. ‘Dull’ Argentinian wheat
prices in 1928 were attributed to exceptionally large harvests, conditions that would be cured
by adverse weather conditions in 1929 that were expected to reduce yields and drive up
prices.30 Brazilian coffee pundits were flabbergasted by three successive bumper harvests at
the end of the decade, each larger than the previous. Conventional wisdom held that the
bushes produced two large, and one small, crop on a three-year cycle. After record harvests
in 1928 and 1929, the 1930 crop was expected to be small. New plantings of the early 1920s
ensured that it was not.31
The prevalence of a path-dependent mentality helps explain the sluggish swing of the policy
pendulum between orthodoxy and pragmatism. The following stylised ‘phases’ may be
identified. Around 1928-31, the tendency was to resort to conventional emergency measures,
including ‘suspension’ of the Gold Standard in the face of capital flight and balance of
payments crisis, ad hoc exchange control, temporary tax hikes - principally import
surcharges, fiscal retrenchment, credit tightening and debt service moratoria, and export
support. Subsequently, c.1931-3/5, with dawning realisation that the crisis was neither
temporary not of the assumed cyclical variety, ad hoc began to be formalised: banking and
monetary reform, usually (but not everywhere) involving the formation of central banks
and/or the strengthening of existing monetary authorities occurred; there was fiscal
restructuring/deepening - sometimes including direct taxation; commodity price support
agencies multiplied - often entailing intervention in domestic staples; perforce bilateralism in
29
30
31
Michael Chile and the Great Depression: the politics of underdevelopment,
1927-48 (Temple: Arizona State University Press 1998). Chile provides an
example of precocious and conscious policy pragmatism (essentially statesupported economic internalisation, including industrial growth), though also
of continuity during the period. Economic adventurism/heterodoxy was
characteristic of regimes of the 1920s and the 1930s.
Diaz-Alejandro, Carlos F. ‘Stories of the 1930s for the 1980s’ in Pedro Aspe
Armella, Rudiger Dornbush & Maurice Obstfeld (eds.) Financial Policies and
the World Capital Market: the problem of Latin American countries
(Cambridge, Mass: National Bureau of Economic Research 1983), pp.6.
Bank of London and South America Monthly Review September, 1928 Vol. X
No. 118, p.346 and Monthly Review November, 1929 Vol. XI No. 132, p.452.
Abreu, Marcelo de Paiva ‘The Brazilian Economy, 1930-1980’ in Leslie
Bethell (ed.) The Cambridge History of Latin America: Vol. IX: Brazil since
1930 (Cambridge; CUP 2008)p.p.283-394; Font, Mauricio Coffee and
Transformation in São Paulo, Brazil (New York: Lexington Books 2010).
external trade relations was embraced; fiscal stringency was relaxed - with a possible focus
on ‘developmental’ and social projects; exchange control was institutionalised; external debt
negotiation/consolidation and/or repudiation took place; there was a generalised
consolidation of state oversight of the economy. After 1935, growth stimulation and
economic diversification can be observed, even in ‘passive’ and largely orthodox regimes,
involving export promotion and a sharper, explicit focus on economic internalisation
(including pro-manufacturing programmes) in cases where policy pragmatism was greater,
and (in several countries) public expenditure increased, often associated with conscious
efforts to enhancement ‘developmental’ spending and, sometimes, social action.32
Generals, in particular, seemed to have a peccant for building roads and extending railways,
and there were enough generals around, not only the 1930s. Irrespective of the motivation
for public works schemes, they assumed increasing in importance in a number of countries,
and had a proto-Keynesian impact on recovery and growth-fostering market integration.
Taking the period as a whole, the extent to which there was learning-by-doing and buildingon-experience remains a matter of debate. Nevertheless, throughout the decades there is
evidence of shifting ideological stances among policymaking elites and a questioning of the
viability of economic liberalism and the ‘old’ export-led model.33 Of course, there were
enormous variations in the timing of responses - and the capacity and competence of state
32
33
Abel, Christopher & Colin M. Lewis ‘The Era of Disputed Hegemony:
introduction’ in Christopher Abel & Colin M. Lewis (eds.) Latin America:
economic imperialism and the state (London: Athlone 1985), pp.269-87;
Thorp, Rosemary Progress, Poverty and Exclusion: an economic history of
Latin America in the 20th century (Washington DC: Inter-american
Development Bank/Johns Hopkins University Press 1998) pp.107-20; BulmerThomas, Victor The Economic History of Latin America since Independence
(Cambridge: CUP 2003), pp.171-9 & 196-204. The history of taxation,
particularly income tax, remains understudies. See Alhadeff, Peter ‘Public
Finance and the Economy in Argentina, Australia and Canada during the
depression of the 1930s’ in Platt, D.C.M. & Guido Di Tella (eds.) Argentina,
Australia and Canada: studies in comparative development, 1870-1965
(London: St Antony’s/Macmillan 1985), pp. ; Mitchell, Andrew ‘Institutions
and Endowments: state credibility, fiscal institutions and divergence,
Argentina and Australia, c. 1880-1980’, unpublished PhD dissertation,
London School of Economics & Political Science, 2007; Lewis, Colin M. &
Andrew Mitchell ‘Fiscal Credibility, Public Goods and the Budget: the
struggle over federal taxing and spending in the Argentine during the late
twentieth century’ in Morgan, Iwan & Diego Sánchez Ancochea (eds.) The
Political Economy of the Public Budget in the Americas (London: Institute for
the Study of the Americas 2007) pp. ; Sánchez Román, José Antonio ‘Shaping
Taxation: economic elites and fiscal decision-making in Argentina, 1920-45’
Journal of Latin American Studies XXXX 1 (2008), pp.83-108; pater,
For recent research on emergent economic ideologies and the impact of
economic thinking on policy during the period, see: Porcile, Gabriel
‘Agricultural Institutions and Industrialization and Growth: the cases of New
Zealand and Uruguay, 1870-1940’ Mimeo. 2010; Brando, Carlos ‘The
Political Economy of Late Development: Financing Colombia’s
Industrialisation,1940-64’, Mimeo. 2012; Molteni, Gabriel ‘Conceiving
Argentine Economic Development: Economic Ideas, Economic Policy and
Institutional Constraints During the Inter-war Period’ Mimeo. 2012.
agencies, as acknowledged in the ‘old’ and ‘new’ literatures..
Policy and ‘macroeconomic management’: money supply and the tariff
Two spheres of macroeconomic management illustrate both the struggles with economic
orthodoxy and departures from it - monetary policy and tariffs. These are explored
immediately below. The shift from orthodoxy to pragmatism in these spheres also helps
identify differences among economies and sub-periodisation. Monetary policy and money
supply influences and reflects trends in the larger economy, as well as shifting attitudes and
ideologies. In ‘under-banked’ economies with small, shallow capital markets, money supply
was a determinant and indicators of economic performance. Managing money and tariffs
also reflect on state capacity. In a period before national accounting, and before many Latin
American countries entered the ‘statistical age’, money and tariffs were two policy areas for
which reasonably reliable data exists. In addition, in an era before modern concepts of
macroeconomic management had developed (and the devices and information necessary to
such management), money and tariffs were two policy areas for which theory and practical
experience were available. Contemporaries were fully cognizant that changes in tariff rates
influenced trade flows and had an impact on the fiscal accounts and that, all other things
being equal, changes in money supply could influence prices. The near unique combination
of experience, data and theory helped shape tariff and monetary policy in ways that were
quite distinct compared with other areas of policymaking, and conferred particular
importance on them.
The table below, taken from a well-regarded essay by Díaz-Alejandro, points to policy
pragmatism and innovation, emphasising the role of policy in the positive performance of
several economies.
Table I:1: Index of Nominal Money Supply (end 1929 = 100)
Argentina
Brazil
Colombia
Cuba
Uruguay
USA
1928
101.3
100.9
136.3
107.5
90.5
101.5
1929
100.0
100.0
100.0
100.0
100.0
100.0
1930
100.1
95.5
79.3
74.5
103.2
96.0
1931
89.3
99.5
70.2
61.5
100.9
81.4
1932
88.5
107.2
84.2
51.0
101.0
74.2
1933
87.3
103.0
104.5
49.9
103.7
67.2
1934
87.9
119.2
124.9
46.8
105.6
76.4
1935
87.6
130.7
127.5
49.5
112.2
87.9
1936
96.2
143.6
153.4
56.3
131.8
98.1
1937
102.2
150.3
158.2
66.4
146.6
95.9
1938
100.2
186.4
175.1
64.4
150.5
101.5
1939
103.3
195.2
180.8
68.0
154.5
111.7
1940
105.4
209.5
195.6
75.6
163.0
125.7
1941
122.1
271.1
217.4
89.1
175.6
139.7
Source: Carlos F. Díaz-Alejandro ‘Stories of the 1930s for the 1980s’ in Pedro Aspe
Armella, Rudiger Dornbush & Maurice Obstfeld (eds.) Financial Policies and the
World Capital Market: the problem of Latin American countries (Cambridge, Mass:
National Bureau of Economic Research 1983), Table 1.9, p.17.
The number of countries listed is limited, yet Table I:1 can be interpreted as showing a
surprising adherence to traditional practices. Money supply increased dramatically in Brazil,
Colombia and Uruguay after c.1936, though was remarkably stable up to that point. For the
Argentine, the index of money supply was virtually identical in 1928 and 1938, and
‘surprisingly’ stable in the intervening years. Cuba experienced a long period of deflation
that mirrored and exceeded that of the USA. Within the limits of the evidence, Table I:1
demonstrates that if monetary policy became unorthodox or pragmatic, it was only after
1936-7, and by no means everywhere. Even if it is something of an outlier at the end of the
period, Table I:2 also confirms that Argentinian policymaker maintained a close control of
money supply for virtually the whole of the first half of the twentieth century,
notwithstanding major changes in the political regime. Argentinian economic performance
during the half century is well known, namely rapid growth for much of the 1900s, sharp
contraction during the early years of the First World War, recovery and growth during the
1920s, a further shock and sluggish recovery in the 1930s. Similarly, it is recognised that
while there was little overall growth between c. 1914 and c.1940, there was substantial
structural change. Notwithstanding this ‘mixed’ economic picture, and profound political
upheaval, there was a close match between money supply and GDP for approximately four
decades following c.1900, further suggesting the efficacy of macroeconomic management.34
Table I:2: Money Supply and Purchasing Power: the Argentine
Money Supply
Gold Cover
Purchasing Power
($m/n, millions)
(% gold/paper)
(1900 = 100)
1900/04
335
*14.7
100.03
1905/09
565
48.1
89.03
1910/14
773
62.6
82.81
1915/19
1,069
57.4
59.89
34
Vázquez Presedo, Vicente Crisis y retraso: Argentina y la economía
internacional entre las dos guerras (Buenos Aires: EUDEBA 1978); Cortés
Conde, Roberto La economía argentina en el largo plazo (Buenos Aires:
Sudamericana 1997); Gerchunoff, Pablo & Lucas Llach El ciclo de la ilusión y
el desencanto: un siglo de políticas económicas argentinas (Buenos Aires:
Ariel 2000).
1920/24
1,354
77.8
52.49
1925/29
1,334
78.1
60.46
1930/34
1,246
51.6
71.20
1935/39
1,314
-
67.97
1940/44
1,981
-
60.63
1945/49
6,141
-
36.89
1950/54
22,086
-
12.82
1955/59
60,360
-
5.79
Note: *1901/04
Source: Elaborated from FIAT Concord, Dirección de Planificación y Estudios
Argentina económica y financiera (Buenos Aires 1966) pp.316-22, tables 258, 260,
263, 266.
Broad, relative stability in the stock of money in the Argentine is various explained by
ideology, experience, political pressure and institutional development. Following what has
been written above, the Baring Crisis and a bout of inflation during the First World War
strengthened popular and policymaker commitment to monetary conservatism. Political
openings, particularly a growth in electoral support for reformist Socialist parties after c.1900
and the increased influence of trade unions representing urban ‘labour aristocracies’ in the
1910 and 1920s, reinforced a political economy stance in favour of ‘sound money’.
Operational changes at the Banco de la Nacion (the federal government clearing bank, which
accounted for around half the business of the banking sector by 1914) around 1923,
foreshadowing the formation of a central bank in 1935, provided for competent intervention
and control on the part of the monetary authorities. Given a substantial degree of institutional
stability, this corroborates the implicit suggestions of Aguirre and Gerchunoff that effective
conduct of monetary policy in the 1930s may have been a result of learning-by-doing in the
1920s, when both money supply and the exchange rates were carefully managed.35 This
further supports the case for policy continuity across the period, albeit from a perspective of
‘modified orthodoxy’. And, as Díaz Alejandro writes, ‘ ... the brilliant technocrats in charge
of their economies policies [Uriburu (1930-32) and Justo(1932-38) administrations] ... took a
dim view of government deficits and made repeated pledges to correct the situation.’36 This
35
36
Gerchunoff, Pablo & Horacio Aguirre ‘In Search of the Missing Link: the
Argentine economy in the 1920s’ mimeo, Universidad Torcuato Di
Tella/PENT (2005), p.9.
Díaz-Alejandro, Carlos F. ‘Stories of the 1930s for the 1980s’ in Pedro Aspe
Armella, Rudiger Dornbush & Maurice Obstfeld (eds.) Financial Policies and
the World Capital Market: the problem of Latin American countries
(Cambridge, Mass: National Bureau of Economic Research 1983), p.21. For a
more sceptical assessment, see: della Paolera, Gerardo & Alan M. Taylor
Straining at the Anchor: the Argentine currency board and the search for
macroeconomic stability, 1880-1935 (Chicago: University of Chicago
view is confirmed by the detailed research of Alhadeff who explores and explains an
enduring preoccupation with inflation on the part of Argentinian monetary policymakers
though the 1920s, 1930s and 1940s.37
The exchange rate became a key new area of policymaking during the 1930s, representing an
obvious rupture with the 1920s when the quest for ‘normalcy’ had involved a struggle to
return to the Gold Standard or, rather, the Gold Exchange Standard, implying a passive
exchange rate strategy. A monetary standard that was self-regulating and free from political
manipulation enhanced creditworthiness and smoothed the affects of shocks. That, at least,
was the prevailing assumption and theory. Hence, with the abandonment of gold, the
exchange rate had the potential to become an important mechanism of adjustment and
management. Nevertheless, during the 1930s, as in the 1920s, policymakers were aware of
the trilemma, even if the term had not yet been coined. Although few other countries
mirrored the Argentinian experience, this may also help explain a reluctant departure from
orthodoxy in some quarters. The introduction of exchange control provided opportunities for
an active monetary policy and, as spreads between official buying and selling rates widened,
a new fiscal resource. In this sense, exchange control was as much a tax mechanism as a
means of controlling international trade. It has been argued that fiscal gains resulting from
exchange rents enabled the authorities to fund commodity price support, increase expenditure
while balancing the budget, and manage the exchange rate. The device was a key fiscal
innovation that contributed to recovery, growth and macroeconomic stability.38
Nevertheless, it remains a moot point, in the case of those monetary and treasury authorities
who developed active money and exchange rate policies before the late 1930s, whether the
objective was macroeconomic stability or the promotion of structural change. Undoubtedly,
there was structural change in the Argentine, possibly resulting from an ‘over-valued’
exchange rate, consequent on sound management, even if limited overall growth.
As shown in Table I.1, countries like Brazil, Colombia and Uruguay experienced
considerable monetary expansion around the mid/late 1930s, suggesting a a shift in policy
and/or ideology, or a crude response to pressures to inflate. Abreu implies that, for much of
the period, an expansionary stance on money supply, coupled with export promotion and
‘selective’ bilateralism, plus the ‘closure’ of the economy fostered structural change and, at
some point, growth.39 As argued above, others would view this mix of policies as pragmatic
and signalling state competence in the fields of domestic macroeconomic management and
international economic policymaking. A relaxed approach to money supply facilitated
37
38
39
Press/NBER 2001).
Alhadeff, Peter ‘The Economic Formulæ of the 1930s: a reassessment’ in
Platt, D.C.M. & Guido Di Tella (eds.) The Political Economy of Argentina,
1880-1946 (London: St Antony’s/Macmillan 1986), pp. .
Alhadeff, Peter ‘Public Finance and the Economy in Argentina, Australia and
Canada during the Depression of the 1930s’ in Platt, D.C.M. & Guido Di Tella
(eds.) Argentina, Australia and Canada: studies in comparative development,
1870-1965 (London: St Antony’s/Macmillan 1985) and ‘The Economic
Formulæ of the 1930s: a reassessment’ in Platt, D.C.M. & Guido Di Tella
(eds.) The Political Economy of Argentina, 1880-1946 (London: St
Antony’s/Macmillan 1986).
Abreu, Marcelo de Paiva ‘The Brazilian Economy, 1930-1980’ in Leslie
Bethell (ed.) The Cambridge History of Latin America: Vol. IX: Brazil since
1930 (Cambridge; CUP 2008)p.p.283-394.
growth and structural change in Chile and, again, appears to have been a conscious policy
strand, consistent with other measures applied during the inter-war decades as a whole.40
Commodity price collapse, crisis response and the co-ordination of monetary, fiscal and
credit policies ensured that the industrial and state sectors became the principal drivers of
growth. ‘Inward-orientated’ development resulted from the early crisis of the export-led
growth model in an economy that was relatively advanced, endowed with a small but
significant manufacturing base, and benefited from an established fiscally active state. With
Uruguay, the Chilean government had come to command a substantial flow of revenue per
capita by the 1920s, a fiscal take that was considerably higher than that of the Argentine, the
third-ranking in Latin America in terms of tax revenue per head, and way ahead of the
continental average.41 Perhaps, organisationally and in terms of resources at its disposal,
Chile was becoming a modern fiscal state.
Yet, while some authorities were reconsidering their position vis-a-vis monetary orthodoxy,
others, like the Argentinian, continued to toy with something approaching a conventional
stance. In Mexico, around the early 1930s, following monetary disorder during the
Revolution and the rapid transmission of crisis from the USA, there were demands for a
return to a metallic standard, even as other economies were moving from ‘suspending’ to
abandoning gold.42 Upheavals - often associated with money supply growth - generated
opportunities for some, accompanied by inflationary distributional gains, though many times
culminated in demands for monetary order. In the early twentieth century, as in the late,
perhaps the Mexican case, as with the Argentinian, demonstrates the importance of memory the lasting impact of monetary disorder on popular opinion and the bureaucratic mind,
resulting in a preference for currency stability.
Haber and associates have pointed to the growing influence of manufacturing interests by the
late nineteenth century, and their ability to shape policy, including tariff strategy.
Contributing to contemporary and subsequent perceptions of ‘unnatural’ industrialisation and
40
41
42
Palma, J. Gabriel ‘External Disequilibrium and Internal Industrialisation’ in
Christopher Abel & Colin M. Lewis (eds.) Latin America: economic
imperialism and the state (London: Athlone 1985), pp.318-38, and ‘From an
Export-led to and Import-substituting Economy; Chile, 1918-1935’ in
Rosemary Thorp (ed.) Latin American in the 1930s: the role of the periphery
in world crisis (London: St Antony’s/Macmillan 1984) pp.50-80.
Bulmer-Thomas, Victor The Economic History of Latin America since
Independence (Cambridge: CUP 2003), p.178.
Gómez Galvarriato, Aurora ‘The Evolution of Prices and Real Wages in
Mexico from the Profiriato to the Revolution’ in Coatsworth, John H. & Alan
M. Taylor (eds.) Latin America and the World Economy since 1800
(Cambridge, Mass: Harvard University Press 1998), pp.347-78, (with Gabriela
Recio) ‘The Indispensable Service of Banks: commercial transactions,
industry and banking in Revolutionary Mexico’ Enterprise & Society VII 1
(2007), pp.68-105, and (with Aldo Musacchio & Rodrigo Parral) ‘Political
Instability and Untimely Dissolution: partnerships, corporations, and the
Mexican Revolution, 1910-1929’ Harvard Business School Working Paper,
No. 08-092, 2008. For an assessment of broader ideological currents during
the period, including the commitment to economic liberalism during and after
the Profiriato, see: Weiner, Richard Race, Nation, and Market: economic
culture in Porfirian Mexico (Tucson: University of Arizona Press 2004).
the distorting, growth-inhibiting potential of protection, they explain how customs duties
became progressively protectionist. Before 1930, as after, governments were protectionist
because there were political benefits to be gained from supporting manufacturing. In short,
the determinants were political rather than driven by broader economic objectives.43
Considering potential trade-offs between revenue and growth, Coatsworth and Williamson
extend this argument. Admitting that there were sharp variances among Latin American
economies, they note a protectionist drift after 1865, well before the surge in tariffs and other
protectionist measures of the 1920s and early 1930s. Indeed, they argue that, with the telling
exception of the USA, tariffs in Latin America were the highest in the world at the onset of
the Belle Époque, and remained so for much of the golden age of export-led growth. Only in
the 1930s did the continent lose its primacy as the most protected region in the splintering
international system.44 Bértola and Williamson further the point, also seeking to explain
why tariffs were so high during the Belle Époque, while observing that high external tariffs
and rapid growth were not incompatible, though they speculate that growth might have been
greater with less distortion.45
Differentiating between intent and impact is crucial to a study of the political economy of
tariffs, though sometimes confounded by insufficiently acknowledged. There are a number
of broadly held assumptions about the tariff. First, that during the Belle Époque, most states
in Latin America derived the greater part - or almost the whole - of fiscal income from taxes
on trade, usually import duties. Secondly, and following logically from the first proposition,
that the tariff was largely fiscal in intent - though, as indicated, this assumption is currently
subject to major revision - and most, not only institutionalist ‘ultras’ (who project back into
the period assumptions shaped by the process of import-substituting industrialisation) would
accept that at the margin even revenue tariffs deliver residual protection and can distort
markets/demand. This does not mean that there were no active or effective pro-protectionist
43
44
45
Haber, Stephen ‘The Political Economy of Industrialization’ Bulmer-Thomas,
Victor, John H. Coatsworth & Roberto Cortés Conde (eds.) The Cambridge
History of Latin America: Vol. II: the long twentieth century (Cambridge:
CUP 2006) pp.537-84, (with Jeffrey L. Bortz, eds.) The Mexican Economy,
1870-1930: essays on the economy history of institutions, revolution and
growth ( Stanford: Stanford University Press 2002) and (with Armando Razo
& Noel Maurer) The Politics of Property Rights: political instability, credible
commitments and Economic Growth in Mexico, 1876-1929 (Cambridge: CUP
2003).
Coatsworth, John H. & Jeffrey G. Williamson ‘The Roots of Latin American
Protectionism: looking before the Great Depression’ NBER Working Paper
No. 89999 (2002) pp.3-6.
Bértola, Luis & Jeffrey G. Williamson ‘Globalisation in Latin America before
1940' in in Bulmer-Thomas, Victor, John H. Coatsworth & Roberto Cortés
Conde (eds.) The Cambridge History of Latin America: Vol. II: the long
twentieth century (Cambridge: CUP 2006) pp.11-56, see esp. pp.34-46.
Arguably, the data on unweighted and weighted average tariffs (Fig. 1.3, p.35)
partly borrowed from Coatsworth & Williamson (Fig.1, p.45) shows relative
stability (albeit at a high level, and with sharp periodic fluctuation for the
unweighted data) between c.1870 and 1910, with a distinct cycle thereafter the incidence of protection in Latin America declining sharply during the First
World War, rising almost equally sharply during the 1920s and early 1930s,
only to decline again thereafter.
lobbies - as recorded above, rather that it is difficult to find widespread evidence of a broad,
generalised protectionist intent on fostering ‘industrialisation’. Many protectionist measures
tended to be particular, aimed as much at favoured non-export agricultural producers as
would-be manufacturers. Sugar producers were notoriously the recipients of government
favours designed to offset comparative and technical advantages enjoyed by more efficient
producers in both the international and domestic markets. Thirdly, that politics determined a
dependence on consumption taxes - alternatives such levies on assets and income were
anathema to elites. As stated above, elites in Latin America, as elsewhere, were shy about
taxing themselves. With little exception, the fiscal burden weighed heaviest on the urban and
rural masses who consumed basic wage goods. Fourthly, that there was a tendency for
customs duties to drift upwards in the twentieth century, particularly after the First World
War and again during/after the 1950s. Contemporary accounts show that officials were
aware that inflation/deflation and movements in the exchange rate had an effect on the
incidence of tariffs, and sought to correct for such movements. Changes in the real price of
imports were particularly important given that most duties were specific, or set in relation to
fix official valuations of imports (aforos). Exchequer officers may also have been aware of
import cost/price reductions resulting from the ‘communications revolution’, and the
potential for greater tariff leverage. This said, it is not so clear if customs administrations
were endowed with the techniques and information required for optimal tariff revenue
maximisation - irrespective whether duties were applied to imports or exports.
Particularly important features of the debate about the tariff for this paper are the
commonplaces that Latin American external tariffs were relatively high (and often
undiscriminating) by international standards during the era of ‘free trade’, and that there was
considerable up-ward drift.46 Reflecting on developments in the literature, Rubio
demonstrates there was no inherent contradiction between high - rising - tariffs and their
essentially revenue role. In several countries, the rapid expansion of global trade between
1890 and 1914 was seized to maximise opportunities for revenue growth. Despite substantial
variations in the incidence of revenue collection (tariff income as a percentage of total
imports), ranging between 20 percent and 50 percent, most Latin American states captured a
considerably larger share of income generated by foreign trade than their counterparts in
other regions of the world, and policymaker appear to have been effective at adjusted import
46
The dimension of the recent debate was first framed by Díaz Alejando, who
wrote about ‘protectionism in reverse’ and noted that the Latin American
economies remained relatively open in the 1920s, despite an up-ward drift in
revenue tariffs. See Carlos F. Díaz Alejando Essays on the Economic History
of the Argentine Republic (New Haven: Yale University Press 1970) and
‘Stories of the 1930s for the 1980s’ in Pedro Aspe Armella, Rudiger Dornbush
& Maurice Obstfeld (eds.) Financial Policies and the World Capital Market:
the problem of Latin American countries (Cambridge, Mass: National Bureau
of Economic Research 1983) pp.5-35. For later contributions see Alan M.
Taylor ‘On the Costs of Inward-looking Development: price, distortions,
growth and divergence in Latin America’ Journal of Economic History LVIII
1 (1998) pp.1-28, Coatsworth, John H. & Jeffrey G. Williamson ‘The Roots of
Latin American Protectionism: looking before the Great Depression’ NBER
Working Paper No. 89999 (2002) pp.1-52, Rubio Varas, M.del Mar
‘Protectionism bu Globalisation?: Latin American customs duties and trade
during the pre-1914 belle époque’ Universitat Pompeu Fabra, Department of
Economics & Business Working Paper (2006) pp.1-39.
tariffs in order to maximise revenue yields without ‘killing the market’ during the Belle
Époque.47 Coatsworth and Williamson question the effectiveness of tariff/revenue
maximisation during the long boom - the exponential expansion of overseas trade delivered
high revenues, but argue that the revenue effect was even greater after 1913.48 In addition,
as indicated, Bértola and Williamson show that average tariffs in Latin America were high
and relatively stable before 1914, despite sharp periodic movements - short upward
movements that might signal fiscal adjustment, efforts to regain income lost as differentials
between real and official prices changed. Certainly, the sharp upward corrections in tariffs
after c.1919 points to attempts to recover revenue loss suffered by inflation and exchange
volatility during and after the First World War.49 This would appear to confirm that the
tariff performed a large revenue function before and through the inter-war period.
Industrialists in various parts of the continent complained about ‘dumping’ during the mid1920s and, where it occurred, noted the negative impact for local producers of currency
appreciation.50 Moreover, the subsequent sharp downturn in the contribution of tariffs to
total government revenue during the latter part of the 1930s may suggest that only at that
point did the fiscal function of tariffs started to diminish as other sources of state funding
became available. As the value and volume of external trade declined, other sources of
revenue had to be found. Díaz Alejandro charts the diversification of the Argentinian federal
government revenue base, and declining significance of import tariffs. In the late 1920s,
tariffs had provided well above 50 percent of tax receipts, by 1940, a shade over 20
percent.51 Moreover, by this stage, inflation had been ‘rediscovered’ as a fiscal mechanism
in a number of Finance Ministries and monetary agencies, though experiments with direct
taxation and a recognition of the fiscal utility of multiple exchange rates should not be
ignored. Again, this does not deny potential protectionism resulting from adjustments in
47
48
49
50
51
Rubio Varas, M.del Mar ‘Protectionism bu Globalisation?: Latin American
customs duties and trade during the pre-1914 belle époque’ Universitat
Pompeu Fabra, Department of Economics & Business Working Paper (2006)
pp.13-15, 18-19.
Coatsworth, John H. & Jeffrey G. Williamson ‘The Roots of Latin American
Protectionism: looking before the Great Depression’ NBER Working Paper
No. 89999 (2002) pp.27-8, 31.
Bértola, Luis & Jeffrey G. Williamson ‘Globalisation in Latin America before
1940' in Bulmer-Thomas, Victor, John H. Coatsworth & Roberto Cortés
Conde (eds.) The Cambridge History of Latin America: Vol. II: the long
twentieth century (Cambridge: CUP 2006) pp.36 & 37; see also, Coatsworth,
John H. & Jeffrey G. Williamson ‘The Roots of Latin American
Protectionism: looking before the Great Depression’ NBER Working Paper
No. 89999 (2002) p.46.
Lewis, Colin M. & Wilson Suzigan ‘Industry and Industrialisation in Latin
America: in pursuit of development’ Cuadernos de Historia Latinoamericana
VIII (2000) pp. ; Gómez Galvarriato, Aurora, Aldo Musacchio & Rodrigo
Parral) ‘Political Instability and Untimely Dissolution: partnerships,
corporations, and the Mexican Revolution, 1910-1929’ Harvard Business
School Working Paper, No. 08-092, 2008, pp.
Carlos F. Díaz-Alejandro ‘Stories of the 1930s for the 1980s’ in Pedro Aspe
Armella, Rudiger Dornbush & Maurice Obstfeld (eds.) Financial Policies and
the World Capital Market: the problem of Latin American countries
(Cambridge, Mass: National Bureau of Economic Research 1983), Table 1.11,
p.22.
duties, the principal point being made here is to re-emphasise the essentially revenue function
of the tariff until the end of the period.
Although much of the literature deals with import tariffs, in a limited number of instances
export tariffs provided a steady stream of revenue. The principal examples were Peruvian
guano, Chilean nitrates and Amazonian rubber. That is, commodities where Latin American
producers enjoyed a natural world monopoly. Drawing on a robust theoretical framework
and rich mix of qualitative and quantitative data, Tâmega should how distributional conflict
over rubber fiscal rents between regional and national elites resulted in efforts to maximise
export tax revenue in Brazil. Although arguing that even more revenue might have been
extracted from monopoly rubber exports, he proves that national policymakers were aware of
the niceties of fixing a tax regime that maximised sales and revenues.52 This points to
bureaucratic confidence, and technical competence and knowledge on the part of the
Brazilian finance ministry at the beginning of the twentieth century, even if officials lack
complete access to information and devices that would have resulted in an optimal revenue
tariff, capable of maximising fiscal income without damaging trade. In an earlier, broader
study, with Abreu, Tâmega argues that market share, as well as monopoly power, enabled
some administrations to maximise either export rents or export earnings (through
combination of export price manipulation and import tariffs).53 While the range of
commodity cases analysed in this work is narrow or exceptional, and the time period specific,
the findings again hint at bureaucratic capacity and a sophisticated approach to tariff and
market manipulation in order to extract maximum fiscal rent from overseas trade. In the case
of Brazil, export price manipulation and revenue maximisation at this point chime with
pragmatic yet determined efforts to ‘return’ to gold at the end of the 1920s, and resonates
with works that stress the competent management of the monetary and banking system in the
nineteenth and a high degree of ‘ownership’ of fiscal policy around 1900.54 The depiction
by Tâmega of bureaucratic capacity on the part of Brazilian fiscal officials chimes with that
of Villela and Weller writing about the competence of monetary and financial authorities.
And such capacity and competence may not have been peculiar to Brazil: Irigoin charts
experiment and sophistication in approaches to money and credit (and fiscal extraction)
before and after 1870 among key actors in Buenos Aires.55
Once again, in addition to indicating substantial levels of bureaucratic competence or state
52
53
54
55
Tâmega Fernandes, Felipe ‘Institutions, Geography and Market Power: the
political economy of rubber in Brazilian Amazonia, c.1870-1910’ Enterprise
& Society XI 4 (2010) pp.677-87
Abreu, Marcelo de Paiva & Felipe Tâmega Fernandes ‘Market Power and
Commodity Prices: Brazil, Chile and the Unites States, 1820s-1930’ PUC/RJ,
Departamento de Economia, Texto para Discussão No 511 (2005) pp.1-30.
Villela, André A. ‘The Political Economy of Money and Banking in Imperial
Brazil, 1850-1870’, unpublished PhD dissertation, University of London,
1999; Weller, Leonardo ‘When Banks Rescued Governments: debt crises and
creditor-sovereign relations in Brazil and Mexico, 1888-1914’, unpublished
PhD dissertation, London School of Economics & Political Science, 2011.
Irigoin, M. Alejandra ‘Finance, Politics and Economics in Buenos Aires,
1820s-1860s’, unpublished University of London PhD dissertation, 2000, and
(with Gerardo della Paolera & Carlos Bózzoli ‘Passing the Buck: monetary
and fiscal policies’ in della Paolera, Gerardo & Alan M. Taylor (eds.) A New
Economic History of Argentina (Cambridge; CUP 2003) pp.46-86.
capacity, these assessments underscore the flexibility of some fiscal administrations as well
as efforts to ‘defend’ levels of tax extraction. Whether taxing imports or seeking to capture a
share of export rents, monetary and fiscal authorities were aware of events and processes that
might erode the tax take and manifest the ability to respond accordingly. It is logical to
assume that if taxing overseas trade was the principal means of financing the state, this was
likely to be an area of competence and capacity. By the inter-war decades, past experience
and the building of institutional memory should have yielded an ability to deal with the fiscal
challenges of the period, confirming the enduring revenue function of the tariff.
Some final thoughts
This survey of monetary and tariff policy during the inter-war period has attempted to
contribute to a reassessment of policy ‘drift’. It has considered the extent to which these
years should be viewed as containing a high degree of integrity and policy continuity. The
period was not simply an interlude between two distinct political economies, that of the Belle
Époque, the ‘golden age’ of export-led growth, and that of state-sponsored developmentalism
of the post-1940s. Rather, autonomous, pragmatic policymaking may be observed, and one
that entailed substantial domestic ownership. There was a blend of ‘market-friendly
economic internationalism’ coupled with pragmatic interventionism capable of delivering
macroeconomic stability.
Acknowledging profound changes and challenges in the international order, there is
considerable evidence that internal factors had a major impact on the configuration of the
state, policy ‘models’, the dynamics of growth and the evolving socio-political context. This
underscores the importance and implications of framing events like the Mexican Revolution
at one end of the continent, and the telling mix of optimism and pessimism about the viability
(or, rather, flexibility) of prevailing arrangements associated with El Centenario in the
Argentine and batllismo in Uruguay, at the other. Perhaps, too, this explains a substantial
degree of policy continuity in the areas studied. As argued, many emergent social groups
were convinced of the value of orthodoxy in monetary policy, while administrations of all
hues understood that taxing overseas trade was a reliable - if not equitable - means of
financing the state, and that these were two fields of established bureaucratic capacity.
Various authors, from Gerschenkron to Tilly, to Oszlak, and to Centeno and López Alves,
indicate that war and economic crisis may facilitate greater state command of resources;
governments confronted with challenges, whether domestic or external in origin, require
resources in order to survive. Although principally concerned about ‘late’ industrialisation,
Gerschenkron’s studies of Meiji Japan and Czarist Russia demonstrate how shocks can
trigger a surge in state capacity - modernise or collapse being the start alternatives. However,
this does not necessarily require a jettisoning of well-tired expedients. Regimes in Latin
America were subject to fiscal shocks between 1914 and 1945. Producers and exporters
experienced demand surges and collapses - and by credit (and general supply) crunches and
phases of liquidity. Labour - and consumers - were confronted by volatility in factor and
product markets. Yet Latin America was not a theatre of war and institutions - and agents probably allowed more response time. Perhaps, too, because external shocks were muted in
their transmission, policymakers had more space to adjust and tinker with tried and tested
remedies, developing approaches as and when circumstances required, or when timehonoured strategies demonstrably no longer served. As flagged in the opening quotation by
Thorp, this may explain the better performance of the Latin American economies during the
period - if macroeconomic performance was (largely) a function of policy and management.
Once again, these circumstances may account for pragmatism modulated by a degree of
policy continuity.
Pre-1914, following the adhesion of silver producing economies such as Peru and Mexico to
the Gold Standard in the early twentieth century, continuing commitment to orthodoxy in the
sphere of monetary policy was reflected in efforts by Brazil to (re-)join the Gold Club on the
eve of the First World War and again in the late 1920s, attempts by regimes of the early
1930s in Mexico to restore confidence after the monetary chaos of the 1920s by restoring a
metallic basis to the currency (on this occasion, silver), and enduring anxieties about inflation
in the Argentine throughout the 1930s after the ‘suspension’ of the Gold Standard (or, rather,
Gold Exchange Standard) in 1929. Of course, orthodoxy was often tempered with
pragmatism, as evidenced by the ‘return’ to gold in the 1920s. Perhaps it is also worth
restating and providing additional international context for the example given above.
Argentinian policymakers were inclined to re-establish convertibility on the basis of the pre1914 parity; Brazilian officials engineered a ‘return’ at a lower parity, which required
considerably less ‘squeezing’ of the money supply. For some countries, the political costs of
deflation were regarded as unacceptable. Yet, in this, the Latin American economies were no
different to many others. Thus, if as their Argentinian counteracts, many officials at the Bank
of England and British Treasury regarded a return to the pre-War gold parity as a matter of
honour, like their peers in Paris, those in charge of monetary policy in Rio de Janeiro saw
political and economic advantage in settling on a new, lower parity.
Continuity of orthodoxy in economic policy is one justification for regarding the inter-war
period as a whole. Another, paradoxically, derives from the fact that elements of what would
later feature in developmentalism emerged in the 1930s. Several scholars like Love and
FitzGerald have stressed that aspects of cepalista strategy, policy and ideology can be
observed in the 1930s. This paper argues that similar arguments can be advanced for the
1920s, albeit that the evidence is fragmented and more limited. The difference here is the
argument in favour of pragmatic internationalism (continuity), coupled with modulated
interventionism. In view of the economic and political turmoil of the period, it is not
surprising that the nature and institutions of the state changed. Again, the principal questions
remain: to what extent were these changes largely confined to the post-1929/30 decade, or
prefigured during the 1920s. Institutions do not change or evolve of their own accord,
agency and contingency play a part. What passed for macroeconomic policymaking at the
time, irrespective of whether innovative or tried-and-tested, required a competent (possibly
confident) cadre of policymaker and state institutional capacity. Size is no proxy for capacity
and competence, and accepting that the growth of states during the period was considerably
more modest than that which would occur during and after the 1940s, the apparatus of
government expanded in many countries and became more centralised, notably in such areas
as monetary management and fiscal capacity. The trend was neither linear nor complete, yet
in various instances there was a gradual, incipient enhancement of the principal
characteristics of stateness - territorial control, administrative outreach and command over
resources. And, there were the new ideas and ideologies associated with pragmatic
internationalism and a redefinition of the role of the state, ideologies and ideas that
underpinned policy prescriptions designed to maximise international engagement while
exploiting opportunities for autonomous action and growth, as depicted by Molteni and
Moura.