The Political Economy of the Brazilian State, 1889–1930 9781477305195

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The Political Economy of the Brazilian State, 1889-1930

Latin American Monographs, no. 71 Institute of Latin American Studies The University of Texas at Austin

THE POLITICAL ECONOMY OF THE BRAZILIAN STATE, 1889-1930

By Steven Topik

University of Texas Press, Austin

Library of Congress Cataloging-in-Publication Data Topik, Steven. The political economy of the Brazilian State, 1889-1930. (Latin American monographs / Institute of Latin American Studies, the University of Texas at Austin; no. 71) Bibliography: p. Includes index. 1. Brazil—Economic policy. 2. Brazil—History—1889-1930. I. Title. II. Series: Latin American monographs (University of Texas at Austin. Institute of Latin American Studies); no. 71. HC187.T558 1987 338.981 87-5835 ISBN 0-292-76500-2

Copyright © 1987 by the University of Texas Press All rights reserved First Edition, 1987 Requests for permission to reproduce material from this work should be sent to: Permissions University of Texas Press P.O. Box 7819 Austin, Texas 78713-7819

To Martha, for her love and help To Julia, who wasn't much help and to Natalie, who was in no position to be

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Contents

A Note on Numbers and Names ix Acknowledgments xi 1. Introduction 1 2. The Financial System 27 3. The Defense of Coffee 59 4. The Railway Network 93 5. Industrialization 129 6. Conclusion 161 Notes 169 Selected Bibliography 207 Index 229

Figures 1. Real Federal Spending, 1891-1945 20 2. Real Federal Spending as Percentage oí Gross National Product, 1891-1945 21 3. Brazil's Railways in 1930 119

Contents

A Note on Numbers and Names ix Acknowledgments xi 1. Introduction 1 2. The Financial System 27 3. The Defense of Coffee 59 4. The Railway Network 93 5. Industrialization 129 6. Conclusion 161 Notes 169 Selected Bibliography 207 Index 229

Figures 1. Real Federal Spending, 1891-1945 20 2. Real Federal Spending as Percentage oí Gross National Product, 1891-1945 21 3. Brazil's Railways in 1930 119

viii Contents

Tables 1. Comparison of Population Distribution, by Profession, 1920 9 2. Indebtedness of South American Countries 14 3. Comparative State Income, Rio Grande do Sul, Minas Gerais, São Paulo 16 4. Indicators of Regional Predominance as Percentage of All State Activities, Federal District, Minas Gerais, Rio Grande do Sul, São Paulo 18 5. Size of the Federal Bureaucracy 22 6. The Banco do Brasil in the National Banking System 54 7. Coffee Production, Exports, and Prices 81 8. Ownership and Operation of Brazil's Railroads, by Economic Sector 103 9. Traffic Carried by State and Private Railroads 104 10. Two Measurements of Railroad Productivity, 1907-1930 112 11. Rail Fares, State and Private Railways 113 12. Expenses of Selected Railway Lines, 1906-1930 116 13. Regional Distribution of Rail, 31 December 1930 124 14. Federal Revenue and Expenditures, by Geographical Division 126

A Note on Numbers and Names

This is a study of political economy; therefore, it contains a great many numbers and names, both of which are problematic in Brazilian studies. Most of the economic data I have used were collected—sporadically— by understaffed and underfinanced Brazilian government agencies. Hence there are no reliable figures on such important items as foreign investment, the balance of payments, or the gross domestic product. National banking statistics were collected first in the late 1920s; the only national industrial censuses were taken only in 1907 and 1919 and both, particularly the first, are of questionable accuracy. Even data on international trade, the most assiduously gathered of all, are replete with errors caused by inefficiency, inconsistencies in categorization, contraband, and other forms of cheating. Federal deputies often did not even know the extent of the federal debt and deficit. Most state and municipal data are no more reliable. Even where numbers are rather trustworthy, they are problematic because of inflation, oscillating exchange rates, and sharp regional differences in levels of development. Historical series and, indeed, any comparison over time, are troublesome because inflation and currency devaluations hinder calculations of real values. National-level figures such as GDP and the inflation rate do not reflect the reality of parts of Brazil that were only partially in the money economy. And yet I use numbers. Since most generalizations require some sort of numerical reference, crude though it may be, I have provided numerical estimates. I have rounded off most figures to reflect the level of certainty. Most are probably quite close to the reality; some, maybe less so. In either case, the numbers should be understood as ballpark figures, some fit nicely in Little League parks; others perhaps belong in Rio's Maracana. I do not believe that a correction of my estimates by 10 percent or even one-third would appreciably alter my conclusions. Names are another problem. Brazilian usage can be somewhat confusing. People with uncommon first names were usually called by that name; hence, Presidents Deodoro, Floriano, and Washington Luís. Common first names

χ Note usually led to the use of one or two last names; thus we have Presidents (Manoel) Campos Sales, (Francisco) Rodrigues Alves, and (Afonso) Pena. Brazilian Portuguese has undergone several orthographic modifications since the First Republic to simplify the language. I have spelled names as the person did himself, but employed modern spellings for other Portuguese words.

Acknowledgments

This work, as with most intellectual endeavors, is the product of many discussions and arguments. It is part of an ongoing dialogue; in that sense it is a collective work, though I, of course, have done the work. It is impossible to acknowledge the many people who have influenced and shaped my perspective. I would like to think that in myfiveyears in Brazil as researcher and instructor I acquired a sensitivity to Brazilian concerns and viewpoints. A number of people were particularly important in orienting me. I would like to thank Aidyl de Carvalho Preis, my colleagues, and my students at the Universidade Federal Fluminense, particularly Elza, Ismênia, Francisco, Maria Lúcia, Teresa, and Vitória. I am also grateful to Antônio Tupy, Nelson and Yara Nóbrega, and João and Vale Colonelli for making Brazil clearer to me. I would also like to express my thanks to José Murilo de Carvalho, Marieta de Moraes Ferreira, Winston Fritsch, Barbara Levy, Eulália Lobo, Pedro Carvalho de Mello, Nancy Naro, Fernando Novais, Ana Maria dos Santos, John Schulz, Bob Sienes, and Francisco Weffort. The staffs of the following institutions were invaluable in helping this gringo study Brazil: the Arquivo Nacional, Biblioteca Nacional, Biblioteca Municipal de São Paulo, Casa Rui Barbosa, CPDOC of the Fundação Getúlio Vargas, Centro de Indústrias do Brasil, Rede Ferroviária Federal, Ministério da Fazenda, and Real Gabinete Português de Leitura. I was also fortunate to enjoy the advice and criticism of numerous people in the United States. Particularly helpful were Werner Baer, Nigel Bolland, Jonathan Brown, John Coatsworth, William Glade, Richard Graham, Lewis Gould, Robert Levine, Joseph Love, Richard Newfarmer, Thomas Skidmore, Joseph Sweigart, and Thomas Trebat. Most of the research in the United States was conducted at the Nettie Lee Benson Library of the University of Texas, Austin. I would like to thank its excellent staff for all of their assistance. I owe much to my parents, Kurt and Gertrude Topik, for their examples of courage and perseverance. Most important, and most constant, has been the dialogue with Martha Marcy Topik, who has supported and critiqued this enterprise through its overly

xii Acknowledgments long passage from idea to the printed page. It is to her that it is dedicated. Last, I would like to express my gratitude to the funding agencies whose generosity allowed me to do thorough research. I hope this volume repays their trust. I benefited from a Fulbright-Hayes research fellowship in 19741975, a fellowship from the Latin American Committee of the Social Science Research Council in 1982, Colgate University research and clerical grants in 1982 and 1983, and a Fulbright-Hayes lecturing fellowship in 1984.

The Political Economy of the Brazilian State, 1889-1930

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1. Introduction

The Brazilian state today is one of the most economically active in the capitalist world. The state's success in forging rapid development and propelling Brazil into a leadership role in the Third World has made it the object of a great deal of study. It is generally held that the state's prominence in the economy resulted from the industrialization drive and heightened mass politicization that began after 1930. Before then, Brazil, like the rest of Latin America, was supposedly dominated by an export oligarchy that combined with European and North American capitalists to sharply restrict the state's economic presence.1 This study demonstrates that, in fact, well before the disruption of the export economy in 1929, the Brazilian state was one of the most interventionist in Latin America. It owned two-thirds of the country's railroads, its largest shipping line, major ports, its largest commercial bank, savings banks, and three of its wealthiest mortgage banks. Congress established an import tariff that a U.S. congressional investigator calculated in 1915 as the highest in the Western Hemisphere. The state also controlled the marketing of coffee and heavily influenced the commodity's international price. This work explores the extent of the Brazilian state's economic role during the First Republic (1889-1930) and the reasons for its prominence by examining its performance in four key sectors: finance, the coffee trade, railroads, and industry. By looking at the controversies in these vital areas, it explains how domestic interclass and international struggles shaped policy. It also examines the degree to which the state acted relatively independently from the forces of civil society, as well as the impact of ideology in coloring the vision of what needed to be done. Thus, on one level this is a study of political economy that seeks to determine who exercised state power during the First Republic. It also considers, secondarily, the consequences of the state's economic performance for Brazil's economic development, national sovereignty, and the distribution of wealth.

2 Introduction Perspectives on the Republican State The Brazilian state's imposing economic role has received insufficient attention because its evolution and its participation in the economy have been relatively minor concerns in the historiography of the First Republic. Students of the period have generally paid more attention to republican politicians' words than to their actions; most studies assume that with the overthrow of Brazil's monarchy the country joined the Latin American mainstream by establishing an economically liberal oligarchic regime. Since the state's activities purportedly were limited, attention has been concentrated on the private sector. The Republican Revolution of 15 November 1889 and the promulgation of a new constitution in 1891 are often cited as fundamental political steps in the transition to full-blown capitalism in Brazil. After the abolition of slavery on 13 May 1888, the archaic Empire lost its reason to exist. Power shifted to the coffee planters of the Center-South, who took, in E. Bradford Burns's words, "absolute control of the nation."2 They set about establishing the most decentralized regime in Latin America by awarding virtual autonomy to the states. Republicans sought to remove the state from the economy because they believed that imperial interference had hindered development. Some authors argue that the state now declined to intervene because of material necessity. André Gunder Frank reasons that "the assumption of state power and the imposition of liberal policy occurred . . . only after an appreciable increase in production and exportation of coffee . . . had placed [it] in the leading position, accounting for more thanfiftypercent of the country's total exports."3 Luís Carlos Bresser Pereira observes that "on the economic plane it [the oligarchic state] copied laissez faire because it did not have the means to adopt another alternative."4 Other authors argue that economic liberalism was instituted in an effort to imitate European prosperity by slavishly accepting its intellectual currents. Hélio Jaguaribe concludes that "Brazilian thought . . . stayed faithful to laissez faire doctrines applied with doctrinaire sectarianism."5 Celso Furtado maintains that "European economic science in Brazil was filtered through the law schools and tended to become transformed into a body of doctrine which was accepted independent of any endeavor to compare it with reality. Where such reality was far removed from the ideal world of doctrine, this was felt to be a symptom of social pathology."6 Whether for material or ideological reasons, the Brazilian republican state's "economic actions [were] extremely reduced."7 Indeed, even Claudio Veliz, who believes that Latin America has been guided by a "centralist tradition" since its European colonization, sees an exception during the rule of the export oligarchy, which removed the state from the economy all over Latin America: "The exporters of primary commodities and importers of manufactured goods

Introduction

3

were almost by definition ardent supporters of laissez faire liberalism because they had no option but to oppose any tax or reduction on the free movement of goods across international frontiers."8 The prevailing interpretation argues that in Brazil only after the First Republic collapsed and Getúlio Vargas came to power in 1930 did the country gain, in the words of Robert Hayes, "a nationalist spirit which declared an end to laissez faire economics and emphasized a strong new role for the federal government in the economy."9 Thus it is only after 1930 that the state's economic policy became an important subject for study. Another reason for the dearth of political-economic analyses of the republican state is the assumption that state officials simply did the bidding of the export oligarchy. A common viewpoint in the dependency school is that a narrow alliance of export planters, merchants, financiers, and foreign capitalists dictated policy. They enjoyed a wide community of interests and a shared consciousness of the needs of the economy. The liberal state had no autonomy; it was simply a messenger boy and foreman for the ruling class. It was, in Frank's words, "the corrupt state of a non-country."10 As the state was simply a conduit for the "lumpenbourgeoisie" and imperialists, most followers of dependency theory have preferred to focus their attention on the power behind the throne and the process of capital accumulation.11 Because of the prevailing characterization of the First Republic, the principal economic overviews of the period, such as those by Cardoso de Mello, Furtado, Normano, and Prado, concentrate on the forces of production in the private sector. The studies of specific aspects of the economy, such as those by Cano, Dean, Graham, and Stein, also concentrate on private investors, and on the production process.12 Not that Republican economic policy has been ignored. There are a number of studies on specific sectors: Neuhaus and Pelaez and Suzigan examine monetary policy; Levy investigates the Rio stock market; Baer and Leff explore aspects of industrialization, with emphasis on the post-1930 period; Lobo confines her inquiry to the economic growth of Rio de Janeiro; Luz's study of the struggle for industrialization essentially ends with the First World War; and the defense of coffee is treated by Holloway, Delfim Netto, and Pelaez.13 These studies make important contributions to the understanding of the First Republic. But many of them were undertaken to test economic theory, not to explain the historical process. They concentrate on the pace and nature of development; state action is usually explained in terms of economic necessity or ideological preference rather than by struggles between competing interests. Because the studies consider isolated elements of public policy, the interplay between steps taken in various sectors is understated and, hence, the dynamic of state intervention inadequately treated. Even those authors who take a more global perspective of the economy, such as Venâncio Filho, Villela and Suzigan, and Randall are little

4 Introduction interested in the political contests involved in the formulation of policy.14 Causes of State Intervention Between 1850 and 1940 export economies blossomed throughout Latin America. With them came the rise of a new export bourgeoisie, which allied with foreign capitalists to wrest control from the traditional oligarchy. The colonial heritage was abandoned and liberalism adopted. Economic policy was now guided by the belief that prosperity would result from exploiting one's comparative advantage through free trade, laissez faire, a balanced budget, and the gold standard. The state's role was simply to guarantee order so that international markets could stimulate the development of Latin America's enormous potential.15 Immanuel Wallerstein has argued that liberal regimes in Latin America and elsewhere in the periphery were a consequence of the growth of European states: "The strengthening of the state-machineries in the core areas has its direct counterpart in the decline of state-machineries in peripheral areas."16 How then does one explain the extent of the oligarchic state's participation in the Brazilian marketplace? A number of theories on the rise of state interventions in Brazil and elsewhere have been offered. Some authors argue that Brazilian policymakers were motivated by positivism, not liberalism. Positivism advocated a greater state role in society than did liberalism. This led advocates to call for more state oversight of the economy.17 Nathaniel Leff maintains that the rise in state spending during the First Republic was a result of the decentralization embodied in the 1891 Constitution. Local leaders became willing to entrust state officials with more resources once the growth of "democracy" put the state increasingly under local control.18 A more popular explanation is that the republican state was strong not because of the 1889 revolution, but despite it. The patrimonial school sees the state as a product of Iberian tradition and a weak national bourgeoisie. Bureaucrats asserted themselves in the economy in the interests of their own estate; they did not distinguish between the public and private spheres. The line of argument is similar to the corporatist school for Spanish America and Alavi's notion of the postcolonial state. Proponents of this view in Brazil, such as Uricoechea and Schwartzman, are primarily concerned with the political manifestations of patrimonialism. Faoro discusses its economic ramifications, but his panoramic study does not permit the in-depth monographic attention necessary to test the position.19 Other authors argue that state interventions have been the product of development rather than remnants of a colonial past. Baran and Sweezy, Bukharin, Galbraith, Kolko, and Weinstein all contend that the state's economic presence in the United States and Western Europe grew because a

Introduction 5 vigorous bourgeoisie called for aid to resolve contradictions inherent in monopoly capitalism.20 Amin and Gershenkron, examining "backward" countries with weak national bourgeoisies, assert that in these cases, too, rapid development bolstered the state's economic role. Often, fear of imperialist invasion prompted a "revolution from above," in Trimberger's words, such as in Japan, Russia, and Turkey. State officials allied with dominated classes to restructure the economy. In these instances, foreign investors, ironically, strengthened the public bureaucracy, as state officials served as intermediaries between the national and international economies and hence had privileged access to foreign capital. In countries that had been colonized by European powers, the state also often played a large role, but in the interests of metropolitan capitalists; according to Murray, "The colonial state administration, not private enterprise, was the major instrument employed to develop colonial exploitation."21 These theories focus on the relative autonomy of the state bureaucracy, the strength of the national bourgeoisie, and the participation of foreign capitalists to explain the growth of state economic activity; however, the rise of subordinate classes also has led to greater state interventionism in many countries. When formerly subordinate classes become hegemonic, they often employ the state to combat the previously dominant class. It has been frequently asserted in Brazil that the growth of state activism after 1930 was the result of a rising industrial bourgeoisie. A militant working class and peasantry seized the means of production in Russia in 1917. In Mexico and China, mobilized peasantries helped restructure social relations. Sometimes the increasing power of subordinate classes leads to a Bonapartist regime in which classes or class fractions are so evenly balanced that the state bureaucracy can mediate between them, thereby gaining considerable room to maneuver. It must act aggressively to appease its heterogeneous support. Such a regime could either have civilian leadership, as do many of the populist governments in Latin America, or military heads, as Egypt and Peru have had. These theories and historical examples suggest that to understand the growth of the Brazilian state's economic role, one should examine Brazil's class structure, the position of foreign investors, and the nature of the state bureaucracy and armed forces. The next sections provide an overview of these groups. Brazil's Social Structure Brazil's social structure was conditioned by the country's dependence on foreign markets. Indeed, Brazil had been molded by its role in the world economy since its discovery and colonization by the Portuguese. The production of, first, dyewood, then sugar, later gold, and by the second half

6

Introduction

of the nineteenth century, coffee and rubber, shaped social relations and growth. Only Argentina of all Latin American countries exported more than Brazil in the 1889-1930 period. Brazil accounted for as much as 80 percent of the world's coffee production and, before 1912, for over half of all rubber. It was also the world's largest maté tea producer and by the 1920s the second-largest cocoa exporter.22 Exports accounted for between onethird and one-fifth of GDP during the first part of the Republic, strengthening the hand of planters. Coffee and rubber, often responsible for over 80 percent of the country's exports, propelled the economy. The level of exports largely determined the rate of capital accumulation and investment as well as aggregate demand. The foreign exchange they earned paid for the imports necessary for constructing Brazil's infrastructure and industrial plant. Foreign trade provided revenues for the federal and state governments and gold to service the foreign debt. And the prosperity of the externally oriented sector attracted foreign capital. It is not surprising, then, that export planters constituted the dominant fraction of the national bourgeoisie, one of the strongest in Latin America. Although in Europe "bourgeoisie" originally referred to urban merchants and financiers who struggled against the rural feudal nobility to implant capitalism, in Latin America many fazendeiros were bourgeois; parts of the countryside were integrated into the capitalist world economy early on because of the export orientation. Because of the prevalence of plantation agriculture, a relatively small number of men, principally in São Paulo, Minas Gerais, Amazonas, and Pará, dominated export production; a substantial majority of them were native-born Brazilians. Brazil did not suffer from important foreign-owned export enclaves, as did much of the rest of Latin America. Although planters and rubber aviadores (merchants) often employed debt peonage or semiwage labor that also received land privileges, they were fundamentally capitalists. In agriculture they profited more from surplus-value than from rent or primitive accumulation. Moreover, they often invested in areas outside of agriculture, such as finance, public utilities, railroads, and even industry. But despite the economic superiority and political mastery of the export oligarchy, it often failed to impose its program on the state. Part of the reason for the inability of the export oligarchy to simply dictate policy was that Brazil was not a banana republic or, better, it was not merely a large coffee plantation. There was an uneven dependence on foreign markets, which was reflected in conflicts over national economic programs during the First Republic. Many states hardly participated in the export economy. Whereas producers in the sparsely populated North concentrated on shipping rubber abroad, no Northeastern product had an important position in foreign markets except Bahian cocoa. More than two-thirds of the sugar and cotton crops were sold internally. The Center-South was the

Introduction

7

principal export region. But agriculture in the former monarchs of coffee, the states of Minas Gerais and Rio de Janeiro, was diversifying to supply the large market in the Federal District (Rio de Janeiro). Even fazendeiros in São Paulo increasingly had interests in the home market. Their sugar, cotton, and meat production boomed, as did their factories. The South imported almost twice as much as it exported. Its beef jerky, lard, wine, rice and lumber were sent primarily to other Brazilian states. Only its maté and canned meat went abroad. Indeed, nationwide exports fell in relative importance over the levels of the First Republic. They declined as a percentage of national output from 33 percent in 1890 to 15 percent in 1928, and also fell as a percentage of government revenues.23 Nonetheless, internecine conflicts within the dominant class between exporters and internal producers did not provoke the struggles that arose in more developed countries. It is true that much production for the internal market was controlled by a subordinate fraction of the bourgeoisie. Sugar, cocoa, beef, and maté, for instance, were largely produced on extensive holdings by capitalists with diversified portfolios. But they did not wield national political power commensurate with their numbers. Indeed, on most key issues they did not oppose export planters because they too hoped to send their products abroad. Other producers for the home market, such as growers of beans, corn, and manioc (some of the most valuable of all crops), were medium- and small-scale property owners with little economic and political strength. Moreover, both groups recognized that the health of the internal economy depended on exports' welfare. The financial and commercial bourgeoisie also did not contest the export model; on the contrary, they applauded it and profited from it. Indeed, merchants, bankers, planters for export and even for the domestic market were often the same people.24 Even the industrial bourgeoisie did not generally assert an aggressively self-conscious identity. The relative advantages of agriculture, small domestic markets, and foreign competition limited the possibilities for industrial growth. Close ties with other sectors further inhibited the rise of a strong industrial lobby.25 Francisco Matarazzo, Brazil's most successful industrialist, aptly illustrated the heterogeneous nature of the industrial class when he discussed the 1928 tariff: "If I am an industrialist... I am also a merchant, an importer on a large scale, and a farmer in the state."26 The state's presence in the economy does not seem to be a response to an aggressive industrial bourgeoisie. Nor was Brazil's urban middle class sufficiently large or forceful to gain many economic concessions from the state. There was urban growth during the First Republic. Most notably, the Federal District's population doubled between 1890 and 1920, reaching over a million. São Paulo, during the same period, grew ninefold, arriving at over half a million. In the interior, the

8 Introduction number of counties that had cities rather than hamlets as their capitals tripled. Nonetheless, nationwide 84 percent of the population continued to live in rural areas as late as 1920.27 Consequently, in the 1920 census, public and private administrators, liberal professionals, and the officers of the army, navy, police, and fire companies represented under 4 percent of the country's total employed population (see table 1). If all commercial workers are included—even though the great majority were undoubtedly poor wage earners—the country's middle class would still have been less than 9 percent of the total employed population.28 This class depended on the export economy, which provided markets, capital, credit, customers, and public revenues. For the most part, the petite bourgeoisie did not have a new vision for the country's development. They were not champions of industrialization or autonomous development. On the contrary, when members of the middle class joined hands in a political campaign, they usually rallied around consumer concerns such as the cost of living, or around issues such as political corruption and employment opportunities. They called for low import duties and a smaller bureaucracy. Whenever they made their voices heard, such as during Floriano Peixoto's adminstration (1891-1894), and during the presidential campaigns of 1910, 1919, and 1922, they served only as allies of one wing of the fractioned oligarchy or of the military. Most organizations that had a middle class constituency (and they were few) were led by men of the ruling class. This was quite understandable, as in Brazil many of the people who generally would be the class's most eloquent spokesmen—lawyers, doctors, engineers, and journalists—were the offspring or more distant relatives of large-scale landowners and hence were likely to identify with the ruling class.29 The nature of the republican political system demonstrates the weakness of the middle class and other subordinate classes. Although many militant republicans greeted the new regime as the dawning of democracy, it was not to be the republic of their dreams. The supposedly liberalized voting requirements of the 1891 Constitution in fact qualified less than one-tenth of the country's population; never more than 6 percent of all Brazilians voted. The system known as "coronelismo" kept power within the rural oligarchy. The colonels, usually latifundists, but also merchants and even industrialists, parlayed their economic power into political force through a series of hierarchical patron/client relationships. In addition to voters, they usually controlled private paramilitary groups, which helped in deciding elections.30 The unity of purpose within the bourgeoisie meant that dissenting factions rarely found appeals to subordinate classes necessary. The political system did not open up much to opposition pressure groups. Although political leaders made a show of honoring liberal political ideals, in actuality the dominant ideology did not adhere to democratic procedures. Liberalism in

Table 1. Comparison of Population Distribution, by Profession, 1920 % of Work Force Agriculture, Fishing Stock Raising Industry

Country Argentina Belgium Brazil Chile Cuba France United States Uruguay Source:

24.1 16.3 70.5 42.9 48.7 41.5 30.7 42.2

DGE, Recenseammento,

38.1 49.6 13.0 25.5 20.0 29.9 32.7 33.1

Transportation Commerce 5.0 8.2 2.8 5.5 (combined 5.5 8.1 2.0

13.3 11.0 5.4 9.4 15.6 10.4 10.8 11.0

Public Positions 5.4 5.9 2.5 3.0 total) 6.1 2.0 5.0

1920, v. 4, pt. 5a, tomo 1, p. xxx.

Liberal Profes- Domestic sions Positions Total 4.2 3.9 1.8 3.3 3.5 2.7 7.0 4.7

9.9 5.1 4.0 10.4 12.2 3.9 8.7 2.0

100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

10

Introduction

Brazil was not the opposition doctrine of an urban industrial bourgeoisie contending for power, as it had been in Europe, but rather the ideological apology of an agrarian, export-oriented ruling class. Only in the cities was any semblance of civil rights maintained and then largely for appearances or "para o inglês ver" (for the English to see). The aspects of liberalism that most attracted its Brazilian followers were the consecration of individual property rights, free trade, and laissez faire, not democratic elections. Demobilization and a stress on traditional personalistic relations, not politicization, characterized the Republic. As a result, coronelismo effectively neutralized the middle class as a political force. The working class fared even worse. Although growing impressively, from 282,000 in 1872 to 1,264,000 in 1920, the working class remained disorganized and marginalized. Its militancy and frequent strikes after the turn of the century did gravely concern the oligarchy; however, workers, organized largely by anarchists, developed no central arm or strategy for working through the system during the First Republic. Although the general strike in São Paulo in 1917 rocked the establishment, the movement was quickly suppressed and many of its leaders deported. The working class was weakened by a large reserve army of unemployed, the use of women and children, and the large number of immigrants who were used to drive down wages and break strikes.31 The position of the industrial working class was further undermined by its marginal role in the economy. Not only was the class small, but it had few linkage effects. Industrial strikes did not threaten the economy's nerve center in the same way that they did in Europe. Coffee processing did not require industrial laborers, so Brazil did not have to yield to the type of threats slaughterhouse workers made in Argentina and miners made in Chile. Though transportation workers, who resembled the European working class in strategic importance, had the most success in organizing and defending themselves, they did not impose change on the political system. The weakness of the industrial working class was underscored by its inability to win significant favorable labor legislation. The 1891 Constitution ignored the subject, although the provisional government had passed a number of measures to regulate child labor and pensions for government employees. In 1905 the federal government attempted to encourage sindicatos, which were corporate organizations intended to maintain harmony between labor and capital. They proved to be failures. Repressive legislation passed two years later to expel foreigners deemed harmful to the national welfare was much more successful. By 1930 over one thousand "undesirables"—mainly labor organizers—had been deported.32 Whereas federal and some state employees did gradually gain benefits such as paid vacations, job security, pensions, child labor legislation, and sick leave, the private sector was left alone. Even though Brazil, as a signer

Introduction

11

of the Versailles Peace Treaty, had pledged to frame a labor code, oligarchic hostility prevented its enactment. The next-to-last president of the First Republic, Arthur Bernardes (1922-1926), made some gestures toward labor, such as passing child and woman labor laws and creating (in 1923) the National Labor Council. But the former were never enforced and the latter was a hollow institution with no power. Bernardes did prove effective, however, in arresting labor leaders, outlawing the newly formed Communist party, and employing a secret police. The last president of the Republic, Washington Luís Pereira da Sousa (1926-1930), was famous for his astute observation that "the social question is a police question." Although the threat of working-class revolt loomed large to republican politicians and workers gained the ear of some congressmen from the Federal District and at the end of the period elected representatives to its municipal council, they received little of substance from the state.33 The urban working class was controlled through repression, not co-optation. Brazil's rural masses were in no position to make demands on the state, despite constituting nearly three-quarters of the country's population. In the interior, latifundists reigned. Many of their plantations resembled principalities more than farms. The largest coffee fazenda, the Dumont plantation, laid over forty miles of track through its land and housed over five thousand permanent workers. Although elsewhere latifundia did not reach such gigantic proportions, they ruled most of the countryside. Even peasants who did not live on the plantations were affected by them, for it was there that the smallholders would seek part-time work, land to rent, and sometimes a market for their food crops. Fazendeiros (fazenda owners) enjoyed the additional power of persuasion over the rural population through their role as leading bankers, merchants, chiefs of their own jagunços (mercenary bands), and their influence with local and state officials. Small-scale farmers and self-sufficient peasants predominated in few places; therefore, they enjoyed little political influence. Indigenous communities, such as those that flourished in the Andes and Mesoamerica, had been virtually exterminated. In Brazil's vast frontier, democracy was little evident. The predatory nature of the export sector drove people into the interior to seek new lands, thereby creating a "hollow frontier." It was to the northern rubber forests, the Center-South coffee lands, and the cities that the discontented population generally flowed. The social structure of the settled population was re-created in the newly opened lands. Whereas in sugar-growing areas medium-sized properties were prevalent, the mill owner generally dominated the countryside. The only areas where the family farm was the rule were the immigrant communities in the southern states of Rio Grande do Sul, Santa Catarina, and Paraná, as well as in parts of Minas Gerais, Espírito Santo, and Rio de Janeiro. Even these farmers, who retained a considerable degree of local self-government, were

12

Introduction

overshadowed by latifundists on the state level. The economic inferiority of the mass of the rural population translated into political impotence. Except for some cooperative movements among the medium-sized farmers in Rio Grande do Sul, Minas Gerais, Rio de Janeiro, and Bahia, most rural organizations (and they were few in number) were controlled by large-scale landowners. Peasants found themselves in vertical patron-client relationships with the local colonel rather than in horizontal groupings within the peasant community. No one in the countryside, moreover, offered them an opposition ideology. The Catholic Church, disestablished in 1891, was poor and sent few priests to the interior. Besides, it stressed spiritual salvation, not social reform. Syncretic African religions, such as Candomblé, also offered individual spiritual solutions, not collective material ones. Only the lay mystics, beatos, preached doctrines subversive to the oligarchic order. When peasants fled the authority of their colonel and flocked to the beatos, as happened in Canudos in 1897 and the Contestado in 1915, state and federal troops descended on their communities, leaving only corpses and rubble. That lesson was well heeded. The colonels sought to prevent political mobilization of the peasantry because that would present a threat to the existing order. For the most part, they succeeded; the rural masses remained politically marginalized. Thus, neither the peasantry, the working class, nor the middle class was in a position to stimulate state intervention. The industrial bourgeoisie and the nonexporting fraction of the ruling class generally allied with the export oligarchy because of the central importance of international trade to the entire economy. And export planters for the most part favored the laissez faire model. Foreign Investment As most members of Brazilian society did not intentionally push the state into the economic arena, were foreign investors responsible for the growth of public activity? International capitalists have frequently encouraged state presence in the economy to ensure a safe investment climate. Certainly, European and North American investors were an important force in Brazil, which trailed only Argentina in total foreign investment in Latin America during the period of the First Republic. European and North American gold played a vital part in the economy and the support of the state. Total foreign investment grew from under $600,000,000 in 1890 to $2,600,000,000 by 1930. During its forty years, the Republic authorized the functioning of 619 foreign companies; the Empire had recorded only 182. Except for the brief years of the Encilhamento in the early 1890s, European and North American companies consistently numbered twice the native corporate starts.34

Introduction

13

At the Republic's outset, foreigners controlled the infrastructure of the export economy. Although foreign capitalists seldom owned the land, once Brazilian-grown coffee, sugar, cacao, tobacco, or cotton left the plantation, it frequently was loaded onto a British or French railroad and carried to a port, most of which were run by French, English, and American companies. In São Paulo most of the railroads were nationally held, as was the Santos port, but Paulista planters faced the same fate as their compatriots when their product reached the coast: exporters, warehouses, and banks were in large part British, German, French, and North American. In addition, the foreign-owned ships that carried Brazil's produce abroad were insured by foreign companies. As foreigners occupied vital positions in the economy, so too did they have a hand on the Treasury's purse strings. British, French, and, later, North American bankers provided the capital necessary for the maintenance of the state and the financing of the transportation infrastructure. Brazil staggered under the weight of by far the largest public debt in Latin America (see table 2).35 Moreover, because foreigners enjoyed a symbiotic rather than a competitive relationship with the national ruling class, no major political alliance was forged in Brazil to champion state nationalizations. Europeans and North Americans tended to invest in the infrastructure of the export economy rather than directly in production and averaged only 5 percent annual profit. Brazilians dominated production, and in the case of coffee often recorded profits of over 15 percent. Foreign capitalists aided native entrepreneurs in even more direct ways. Matarazzo got his start with loans from a British bank; the banker Conde de Figueiredo relied on French capital to found one of Brazil's largest banks; and Guilherme Guinle, one of the founders of the docks at Santos, was president of two subsidiaries of a Canadian-owned company. Many other influential Brazilians worked for foreign firms or accepted covert payments (bribes) from them.36 European and North American investors had the economic and political influence to make a substantial impact on Brazil's economic policy. Although financiers and direct investors sought state favors such as profit guarantees, they often opposed public incursions into the market. The State The actions of state officials are the principal concern of this study. Did their decisions merely reflect the demands of the ruling class and other members of civil society, or did they enjoy some relative autonomy? Did bureaucrats look on their office as a private patrimony or as a public trust? How ample and centralized were the state's powers and resources? To shed light on these issues, this section considers the nature, organization, and size

Table 2. Indebtedness of South American Countries

Country

Argentina Bolivia Brazil Chile Colombia Ecuador Paraguay Peru Uruguay Venezuela Total

Indebtedness as of 31 Dec. 1912 (thousands of US$)

401,017 0 564,474 175,425 11,873 587 3,713 128,568 8,515 20,896 1,315,068

% of American Debt

30.5 0.0 42.9 13.3 0.9 0.0 0.3 9.8 0.6 1.6 99.9

Indebtedness as of 31 Dec. 1928 (thousands of US$)

% of Total South American Debt

670,606 61,309 1,077,016 287,504 69,536 851 4,343 153,412 107,166 6,239 2,437,982

Source: Calculated from Jornal do Commércio, Retrospeto commercial, 1929, p. 206.

27.5 2.5 44.2 11.8 2.8 0.0 0.2 6.3 4.4 0.3 100.0

Introduction

15

of the bureaucracy, and the structure of the political system. The Republic was largely shaped by and for the export oligarchy of the Center-South, rather than for the bureaucrats in the Federal District. The 1889 Revolution's three political contributions were intertwined: it shifted the regional balance of power, initiated federalism, and strengthened civil society. The Center-South states, particularly São Paulo, tried to enhance their position by concentrating on their own resources rather than by directing a robust centralized state. Growing regional disequality, as the Northeast stagnated, and the absence of a national market made federalism attractive to Paulistas, Mineiros, and Cariocas. There was little need for national coordination. The Empire had been the only successful, long-lived centralized regime in Latin America not because of the demands of the market or the independent resources of the state, but because of the need to protect the slave order. That cement crumbled after abolition on 13 May 1888. Previously, state leaders had been appointed from above; now local leaders commanded from below. Provincial autonomy meant that rather than having the most important provincial officials chosen in Rio from a pool of career bureaucrats (albeit closely tied and related to the landed oligarchy), as during the Empire, republican leaders would emerge from provincial sons. Because of the federal system and vote fraud, provincial and local potentates could choose their own men or could serve themselves without the mediation of the national government and national-level concerns. Although economic power had always ultimately held sway over political power, its domination became more apparent and the bureaucracy lost some of its previous independence. The Constitution of 1891 took extensive powers from the central government and granted them to the states, particularly the exporting states. The states gained sole control of the export tax, which they earlier had had to share, therightto borrow abroad without federal approval, complete control over all national lands not necessary for the national defense, and jurisdiction over subsoil rights. These prerogatives were a boon to the Center-South, and especially to São Paulo and the coffee-exporting states: São Paulo's income increased tenfold from 1880 to 1895; Minas Gerais experienced a similar surge, with real income doubling. Other states with less to export gained much less from the export tax and, hence, from federalism. The advantages of federalism for the flourishing Center-South and the export sector grew over time, as its economy overshadowed that of the rest of the country. If São Paulo alone was not yet the locomotive pulling the twenty empty boxcars of the other states, certainly the Center-South region was the most dynamic for most of the period. As table 3 illustrates, the economic gap between the three principal states, São Paulo, Minas Gerais, and Rio Grande do Sul, and the rest of the country widened over time. By

16

Introduction

1930 the triumvirate collected almost 70 percent of all state revenues and had a per capita tax income more than three times that of the remainder of the country. This reflected the economic preeminence of the three states and the Federal District (see table 4). They were responsible for over two-thirds of the country's economic activity, so obviously found federalism appealing. Consequently, the decentralization process continued throughout the Republic. Where the central imperial government had collected 80 percent of total revenues (federal, provincial, and local) in 1868, the republican central government took only 60 percent in the period from 1907 to 1910. By the end of the Republic the percentage had fallen off further.37 The triumvirate picked apart the imperial patrimonial state and reversed the direction of authority. This did not mean that the three ignored the federal government. Alone they could not muster the votes necessary to control Congress. With the Republic's birth they lost representation in the Senate. All states got three senators rather than a number of seats proportional to the electorate. In the House the triad commanded only 37 percent of the votes. Despite these drawbacks, they commanded the executive, and it was the executive that ran the federal government. They usually marshaled over 40 percent of the votes in presidential elections, so that nine of the eleven men elected president during the Republic were from Minas and São Paulo, and one was from Rio Grande do Sul.38 Paulista president Manuel Ferraz de Campos Sales designed the "politics of governors" in 1899 to bolster the executive after a decade of feuds and federal armed interventions in the states had provoked chaos and near bankruptcy. To end the violence and to provide a unified front to the European bankers who were viewing Brazil's political turmoil and financial Table 3. Comparative State Income, Rio Grande do Sul, Minas Gerais, São Paulo Per Capita of 3 Per Capita Income % of All State States Together of Other States Year Tax Revenues (milréis) (milréis)

1897 1910 1920 1925 1930

45.5 41.9 62.3 66.1 69.2

11.3 8.6 21.1 49.0 45.0

9.2 8.2 9.4 16.0 14.2

Source: Calculated from DGE, Anuário estatístico, 1939-1940, pp. 1294-1296, 1412-1415.

Introduction

17

crises warily, Campos Sales sealed a pact with state leaders. In return for their support on the national level, the president agreed to respect those in power in the states. The Mineiro and Paulista presidents thus wielded the bulk of power at the federal level while legitimizing the rule of the colonels in the states. The central government was not simply a puppet of the triumvirate, however. Although representatives of the two major exporting states controlled the federal government, they frequently disagreed on nationallevel politics. The Republic's operation through unofficial conventions rather than through official institutions exacerbated strife. The picture of a smoothly running "café com leite" (coffee with milk) agreement between São Paulo and Minas, signifying a pact to alternate the presidency between the two, is an idealization of a much more chaotic and contentious process. With no true national party after the end of the Empire, recruitment and decision making centered in the states. The leader of the federal delegation was the governor of the state; congressmen took orders. Consequently, the handful of leaders who formed the central committees of the Paulista, Mineiro, and Riograndense Republican parties looked after the interests of their state party rather than national concerns. They attempted to perpetuate their hold on the presidency rather than share it. In fact, the Republic was finally brought down when Washington Luís insisted that another Paulista, not a Mineiro, follow him. If the exception proves the rule, the "café com leite" agreement should be considered well proven. Four of the five Paulista presidents were not succeeded by Mineiros. Clashes over the presidency and ultimately over the federal government reflected more than just power struggles for patronage; real policy differences separated the two states because of their differing degrees of involvement in international markets. Control of the central government during the First Republic was more important than most studies of the period have recognized. Even though, as noted, the Republic brought considerable federalism, it was nonetheless more centralized than generally accepted, just as it was more economically active. Indeed, the central government was the country's principal economic actor, but not because of Iberian traditions, nor because of the absence of a national bourgeoisie. Rather, the state took economic action precisely because it was largely controlled by the national bourgeoisie. The federal government represented Brazil in international matters. This gave it a great deal of power due to the vital place of international affairs in the export economy. Federal power was manifested in economic interventions. The resources that the federal government commanded demonstrate that it was not as fragile as some have assumed. True, state income grew faster than federal revenues, and real federal income declined throughout the 1890s. On the other hand, the real federal budget increased substantially between 1889 and 1930 (see figure 1). The compounded rate of growth of real

Table 4. Indicators of Regional Predominance as Percentage of All State Activities, Federal District, Minas Gerais, Rio Grande do Sul, São Paulo

Minas Gerais, Rio Grande do Sul, São Paulo as % Federal District of All States as % of All States

Indicator

Year

Total population

1890 1920 1930 1920 1920 1928-1932 1907 1920 1930 1921 1928 1897 1920 1930 1920 1930 1930 1907 1920 1930

Meat production Agricultural production Industrial production Bank deposits State revenue Foreign debt of states Muncipal debt Municipal revenue

38.1 41.3 41.5 72.7 58.0 69.0 36.3 50.6 52.3a 40.6 58.3 45.3 62.3 69.2 64.0 78.7 34.7 35.1 44.3 45.9

Total

3.60 3.80 4.00 0.20 0.04

41.7 45.1 45.5 72.9 58.0

33.10 22.30 27.00a 45.30 29.20

69.4 72.9 79.3 85.9 87.5

33.70 27.60 29.80 33.60

68.4 62.7 74.1 79.5

Table 4—continued

Indicator

Taxes paid to federal governmentb Taxes received from federal government

Year

Minas Gerais, Rio Grande do Sul, São Paulo as % Federal District of All States as % of All States

Total

1890 1923 1930

20.0 33.1 37.6

53.90 49.80 44.50

73.9 82.9 82.1

1890 1923

12.0 10.7

66.60 51.40

78.6 62.1

1930

10.6

55.60

66.2

Sources: DGE, Anuario estatístico, 1939-1940, pp. 1302, 1315, 1318, 1356, 1418-1420, 1425; Contadoria da República, Balanço geral da receita e despesa, 1890, 1923, 1930 , pp. 8, 9; Levine, Pernambuco, p. 129; IBGE, Recenseamento de 1920, v. 2, pt. 2, p. viii. a Measure of industrial companies that paid the consumption tax "Most of Minas's import taxes were paid at the port in Rio and thus appear together in the Federal District total

20 Introduction Fig. 1. Real Federal Spending, 1891-1945

federal spending for the entire First Republic was just under 2 percent a year, the same recorded by the supposedly more dynamic Vargas regime that followed it (1930-1945). If the 1900-1930 period alone is considered, the expenditures of the central government mounted at a yearly rate of 5 percent, almost triple the 1930-1945 figure. Real per capita federal spending expanded about 60 percent between 1891, when the republican constitution came into effect, and 1930. Federal spending as a share of GDP averaged 11 percent for the Republic, surpassing contemporary figures for Great Britain and the United States and equaling that of Vargas's first term in office (see figure 2). These measures of economic activity demonstrate the union's paradoxical growth under the federal system.39 Compared to many other Latin American countries, Brazil's central government was active. Its real per capita expenditures were consistently above those of Mexico's supposedly far more centralized Porfiriato, sometimes more than doubling Mexico's outlays. Only Argentina, Chile Cuba, and Uruguay, the four most prosperous countries of Latin America, enjoyed central governments with greater per capita spending.40 Brazil's central government also exploited its generally good foreign credit to borrow abroad nearly twice as much as all states and municipalities combined. It was by far the largest borrower in Latin America, as the federal debt in real terms grew 400 percent from 1889 to 1927.41

Introduction

21

Fig. 2. Real Federal Spending as Percentage of Gross National Product, 1891-1945

As the federal government's resources swelled, public employment mounted. Between 1890 and 1930, the number of employees grew about 250 percent. The growth was probably even larger, as the 1930 estimate is more conservative than the 1890 calculation (see table 5). The population, though, grew at the same rate for the period.42 In essence, the public sector was keeping step with the growth of the country. The total of federal, state, and local employees in 1920 was about 200,000. That equaled the number of votes necessary to win the 1919 presidential election. Probably more than half voted, as politicians made a habit of hiring eligible voters.43 Contemporaries criticized the state for being too large and inefficient; historians have tended to accept their judgment. The government was faulted for injuring the economy with inflation and for depreciating the currency as a result of the budgetary deficits it recorded as a consequence of the bloated bureaucracy. Because the popular notion was that the government that governed best was the one that governed least, a large bureaucracy was a priori evidence of waste. State functionaries were seen as unproductive parasites, useless bacharéis (college graduates) who had no skills, no function, and who gained their positions through nepotism.44 This popular feeling exaggerated the situation; a significant portion of those on federal payrolls were not college graduates, nor unproductive, nor even white-collar workers. In fact, well over two-thirds of those in the public

22 Introduction Table 5. Size of the Federal Bureaucracy Ministry

Impériob Estrangeiros0 Justiça Marinha Guerra Fazenda Viaçãod Agriculturad Total

1890a

1893

2,022 109 3,760 11,414 19,715 4,777 19,733 — 61,530

5,262e 179 2,450 14,662 31,190 6,187 18,265 -78,195

No. of Employees 1912 1920

— 261 9,556 15,826 29,585 8,880 29,649 2,052 95,809

-395 10,497 14,490 42,920 7,187 47,263 1,743 124,495

1930

— 704 16,980 20,019 34,094 10,428 63,851 6,141 152,217

Sources: Contadoria Geral do Império, Resumo do orçamento da receita e despesa para o exercício de 1890, passim; Central do Brasil, Relatoriol 891, table D l ; DGE, Anuário estatística, 1912-1915, pp. 159-162; Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatística das estradas de ferro da união, pp. 78, 79; Ministério da Fazenda, Tabela explicativa do orçamento da despesa de 1920, passim; Contadoria Geral da República, Receita e despesa para o exercício de 1921, pp. 327-333; Lloyd Brasileiro, Relatório, p. 4; Ministério da Viação e Obras Públicas, Inspetoria das Estradas, Estatísticas das estradas de ferro da união, 1920, pp. 92, 93; DGE, Synopse do censo de 1920, pp. 8-97; Contadoria Geral da República, Tabela explicativo do orçamento para o exercício de 1912, passim. a

The budget for 1890 was formulated by imperial politicians in 1889 The Ministério Império ceased to exist as such, was changed to Interior and merged with Justiça in 1892 c Name changed to Relações Exteriores with the Republic d The imperial Ministério de Agricultura changed to Agricultura, Comércio e Obras Públicas and shortly thereafter to Indústria, Viação e Obras Públicas. In 1906 Viação and Agricultura were separated. e Includes Ministério do Interior and Ministério de Instrução Pública, Correios & Telégraphos

b

sector had low-paying, blue-collar jobs. In 1920, 29,305 federal workers were engaged in the state rail system, 4,353 in the postal service, 4, 973 in the telegraph service, 6,065 in the state-owned Lloyd Brasileiro shipping company, 910 in the national press, and more than 1,000 in drought-relief projects. The states and municipalities also contracted industrial workers— in 1930 over 35,000 persons worked for the railroads owned by São Paulo, Rio Grande do Sul, and Minas Gerais. And in 1920 there were 69

Introduction

23

municipally owned electrical power plants, 8 state-run and 432 municipalrun lighting companies, and a number of state-administered ports.45 The public notion of a bureaucracy based on favoritism was in part true. It is clear that upper-level functionaries were usually not model "modern" administrators in the Weberian sense. There was no civil service examination nor institutionalized career pattern. People gained their positions through contact with important personages or in a trade of favors. Officials at the highest levels often entered the government from private or political positions directly into the top echelon. Political office was the catapult. Positions were used for personal aggrandizement through innovative application or nonapplication of laws. Allegations of corruption were legion. Indeed, corruption seems to have been built into the system in some cases.46 Much of what was said about corruption and inefficiency was valid. The budgetary procedure was confused, facilitating the use of public funds for private purposes. Personnel was often hidden under the heading "material" in the budget, and various other departments did not discriminate their expenditures or even report them, in some instances. Expenditures were published years afterward; the 1895 expenditure, for example, was not published until 1902, and 1910 was not offered up to public scrutiny until 1917. Moreover, because of the vagaries of the exchange rate (which greatly affected revenues and outlays), actual expenditures usually wound up being much greater than those budgeted. The 1897 federal budget underestimated expenses by one-third. The various ministries employed different wage schedules and benefits, which heightened the bureaucratic chaos. A 1909 report on conditions of workers in the ministries concluded that there "reigned the greatest lack of harmony" among the ministries.47 The failure of the Brazilian bureaucracy to be a thoroughly efficient and modern administrative apparatus does not necessarily mean that it was as inept and self-seeking as many of its critics claimed, however. Although generally people arrived at positions of power because of whom they knew, what they knew was also important. When men of influence called on politicians to employ their protégés, they stressed the background and training of the aspirant as well as his political connections. A review of the heads of the most important offices of the Republic highlights the professionalism of the republican state bureaucracy. The federally owned Central do Brasil Railroad was run by nineteen men during the Republic. Nearly half had had previous experience with the Central and another five were college-educated engineers. Virtually every director of the Lloyd Brasileiro shipping line after it was nationalized in 1913 was either an engineer or a high-ranking naval officer. Men with either banking experience in the Banco do Brasil or in other banks headed the state bank for more than two-thirds of the twenty-six years it was under federal control.

24

Introduction

The leaders during the remaining years were well-respected financial authorities.48 The ministries, too, were usually run by those whose political experience was complemented by their occupational background. The majority of the transportation ministers were engineers or had railroad experience. All the war and naval ministers, except those under President Epitácio Pessoa, were generals or admirals. The Ministry of Justice was run by lawyers. It is true that in the most important ministry, Finance, appointments tended to be more political than technical. Almost all of the ministers of finance had previously held important political positions. Nine of the twenty-two men who served in the office during the Republic had also served as state governors. Sixteen had law degrees. On the other hand, because there was no economic profession in Brazil at the time, the nearest one could come was a law degree. At least three of the ministers had banking experience prior to taking office. And many others, such as Rui Barbosa, Inocêncio Serzedelo Correia, Joaquim Murtinho, Leopoldo Bulhões, and Amaro Cavalcanti, were considered the leading authorities on economics in the country.49 The highest echelons of administration were concerned with carrying out their duties professionally and efficiently. Reasons of state appealed to them as much as the desires of their civil protectors. Although the federal bureaucracy did not form an independent caste, there was a federal ethos. This was particularly true for representatives of the poorer states, which owed their position and influence more to their contacts on the national level than to those on the state or local levels. It was not uncommon for a man to represent more than one state. Alexandre Barbosa Lima, for example, represented four states and the Federal District in Congress.50 In Rio bureaucrats came to recognize and defend national interests, not merely private ones or those of their home state. As cultural and intellectual capital as well as political, financial, industrial, and commercial center, Rio held a strong attraction for men from poorer, less-cosmopolitan areas. Many followed the examples of Rui Barbosa, Joaquim Murtinho, and Epitácio Pessoa, who settled in Rio, spent most of their lives in the capital, and established law firms or businesses there, all the while maintaining their political bases at home in Bahia, Mato Grosso, and Paraíba, respectively. With friends, contacts, and investments in Rio, the governing elite shared a common culture and interests. The upper stratum of the bureaucracy was a small, in-bred group. Men frequently held numerous high positions and retained them for long periods of time. They often had similar backgrounds. Of the twenty-three men appointed minister of finance during the Republic, twelve earned law degrees from the São Paulo law school and four from Recife. The same concentration appeared in other positions. In Levine, Love, and Wirth's

Introduction 25 study of 753 Mineiros, Paulistas, and Pernambucanos who occupied the highest state and federal administrative and political positions, 70 percent went to law schools, and most of these went to the schools in São Paulo and Pernambuco. Clearly, there was a great tendency to socialize and be socialized. Moreover, 40 percent were related to other members of the elite within their state. Indeed, Love has been able to tie together 97 members of the Paulista elite in one large network of blood and business.51 Because the ruling elite was small and interrelated does not mean Brazil was a patrimonial state; it was oligarchical. Whereas the state was of greater importance and more centralized than is usually accepted, higher-level bureaucrats represented civil society more than their own interests. For the most part, in fact, they represented the export oligarchy.52 The Armed Forces The final participant in the debate over public policy was the armed forces. In many countries praetorian regimes have changed the direction of state programs. In Brazil the military rose to political prominence when it overthrew the Empire. Under the Republic's first administration, headed by Marshal Deodoro da Fonseca (1889-1891), the armed forces enjoyed unprecedented influence, although civilians continued to dominate. During the rule of Deodoro's successor, Marshal Floriano Peixoto (1891-1894), the government was a virtual military dictatorship. In the disgusted words of Admiral Custódio de Mello, the army "convinced itself that the Republic was entirely of its doing and, therefore, it was up to it to occupy the principal administrative and political positions in the country."53 In 1894, however, the armed forces ceded the federal government to the planter oligarchy and except for a short-lived resurgence between 1910 and 1914 remained distant from the levers of power for the rest of the Republic. Nonetheless, they continued as an important force in favor of an active state. The majority wing of the services favored an apolitical stance that stressed military corporate interests, but they retained some political influence by virtue of size, if nothing else. The Republic inherited one of the most professional and well-trained armies and navies of Latin America. The armed forces were considerably larger than all state forces combined and grew over time. And although Brazil's thirty-nine thousand soldiers in 1925 paled next to Mexico's seventy-two thousand, it was, nonetheless, the largest martial body in South America.54 As did federal officials, army and navy officers concerned themselves with national issues. They stressed the need for a strong national defense, widely defined to include internal as well as external enemies. Florianistas (supporters of President Floriano Peixoto) called for state-stimulated

26

Introduction

industrialization to cut the dependence on foreign products. After World War I national defense was expanded to embrace the transportation network and heavy industries. But the military could not win important concessions without strong civilian support. An Overview This review of Brazilian classes, foreign capitalists, the state bureaucracy, and the armed forces suggests that no single one of the theories of state interventíonism discussed is adequate to explain the large economic role of the Brazilian state. The First Republic was dominated by a strong export oligarchy that faced few serious political challenges from other classes and that for the most part enjoyed a community of interests with foreign investors. Planters generally favored a laissez faire economic program. State officials tended to represent the interests of the export oligarchy and also usually endorsed economic liberalism. Although the armed forces favored greater state interventíonism, they did not hold sufficient power to impose a developmentalist policy independently. Nonetheless, the republican state did come to occupy a large place in the Brazilian economy. This study will show that conflicting interests of fractions of the ruling class and foreign investors gradually led to far greater state participation than any of the participants originally desired. The structure of the economy and society, not the intentions of the actors, best explains the Brazilian state's mounting economic presence. The examination of the process by which the state became increasingly involved in finance, coffee, railroads, and industry demonstrates the paradoxical structures that shaped the state's role in the Brazilian export economy.

2. The Financial System

Financial policy was the foundation of the Republic's economic program. Reactions to financial crises were responsible for state interventions in coffee markets, railroads, and industry. Government officials believed that the state's rightful sphere was in assuring the healthy circulation of goods and capital, not in their production. The market would determine production. Therefore, the exchange rate, money supply, and the banking network, which stood at the nexus between the international and the internal economies, were the principal concerns of the economic program. After all, they greatly influenced credit, foreign investment, the distribution of wealth, the level of economic activity, and the cost of living. Government revenues, debt, and budgetary deficits also depended onfinancialpolicy. Consequently, the financial system was the most hotly contested area in the struggle among competing domestic interests, foreign investors, and public institutions; the decisions made there reverberated throughout the rest of the economy. The reality of Brazil's financial system clashed with the goals of the country's leaders. Almost all republican ministers of finance sought, in Celso Furtado's words, to "subject the economic system to the monetary rules prevailing in Europe."1 They wanted balanced budgets, as well as monetary and exchange rate stability. To achieve these, they called for the maintenance of the gold standard, a strong private banking sector, and the influx of foreign capital. The state was to ensure that the forces of the market operated, but it was not to direct them. Despite the commitment to such orthodoxy on the part of officials and the leading members of civil society, the republican state did not in fact abide by classical principles. The federal government generally failed to balance its budget; inflation was endemic for much of the period; and Brazil's currency, the milréis, lost about 80 percent of its value by 1930, as the gold standard was never successfully imposed. Moreover, the state came to exercise impressive control in exchange, commercial credit, and mortgage markets through public institutions that dwarfed their private competitors and undercut foreign banks. This chapter explores the reasons for the contrast

28 The Financial System between laissez faire goals and the more interventionist reality of financial policy during the First Republic. The Banking System in 1889 The Republic inherited a weak financial system with an imposing state presence. This legacy forced continued state interventions, despite efforts to remove the state and strengthen the private system. The central government had long been by far the largest borrower in the country. Its internal debt was twice the sum deposited in all of the banks in the country and greater than the currency in circulation. Government bonds had long been the most attractive liquid investment, deflecting capital from agriculture and industry. The state's foreign debt constituted half the foreign investment in the country. The Treasury'sfloatingdebt strapped some of the country's largest banks, and public savings banks, caixas econômicas, tapped the savings of people of moderate income.2 The imperial government also had been Brazil's largest depositor and lender. Its funds were stored, for the most part, in the vaults of a few favored banks in Rio de Janeiro. Its loans went predominantly to banks rather than to planters to ease credit in times of stress.3 The state's impact on the financial system was amplified by its effect on the exchange rate. Because of foreign borrowing, the imperial Treasury held the largest amount of foreign currency in the country and faced at the same time the largest foreign obligations. It therefore had a substantial influence on the flux of foreign currency and, consequently, on the exchange rate.4 The financial system that the imperial state had so overshadowed was underdeveloped, regionally concentrated, conservative, and dominated to a considerable degree by foreigners. Brazil had only twenty-six banks in 1888, with a combined capital of under 145,000 contos—only 10 milréis per capita. Only seven of the country's twenty states even had a bank at all, and well over half of all deposits lay in Rio's vaults. Most loans, consequently, were extended by individuals rather than by banking houses and credit was generally short-term. The stock market had been a rather insignificant source for capital.5 The abolition of slavery forced the imperial state to departfromtraditional policy to finance the transition to wage labor and to appease slave owners who were not compensated for their freed bondsmen. The unshackling of financial markets in the Empire's last year and a half (known as the Encilhamento) had serious repercussions during the Republic's first years; indeed, the memory of the Encilhamento would affect financial policy for the rest of the Republic. The empire's last prime minister, the Viscount of Ouro Preto, undertook

The Financial System 29 the most ambitious agricultural aid project in Brazil's history to that time when he authorized public loans of 87,500 contos to seventeen banks. Ouro Preto also broke with the twenty-four-year campaign to regain a monopoly of issue for the Treasury and restrain the money supply by awarding twelve private banks the right to issue currency.6 The concessions to private banks resulted in new banks and a thriving stock market. Banks became extremely attractive investments once they received interest-free government loans and the right to issue currency. Between May of 1888 and the fall of the Empire, banks with capital of 324,000 contos were founded, mostly in Rio. This represented more than twice the capital of all banks existing in 1888. The Rio stock market (Bolsa de Valores) flourished; from the abolition of slavery to the end of the Empire, it saw almost as much trading as it had in the previous sixty years.7 The Rise of the Republic Ouro Preto's initiative came too late to save the Empire. The abolition of slavery, a shift in the regional balance of power, distrust of Emperor Dom Pedro's heir, and the growing appeal of federalism had already undermined the regime's foundation. The army toppled the Empire on 15 November 1889, and in its place erected the Republic. In the climate of euphoria created by the change of regime,flourishingexports, a burgeoning banking system, and the stock market boom, everything seemed possible. The Provisional Government (November 1889-February 1891) sought to stimulate rapid development by going beyond Ouro Preto's reforms. It wanted to unfetter the economy from the imperial impediments that were believed responsible for Brazil's failure to realize its potential. The creation of a more robust and entrepreneurial financial system was the keystone of a more global republican policy. This policy encouraged the strengthening of capitalist relations by unharnessing labor, land, and capital. The Empire had freed the slaves and begun subsidizing the passage to Brazil of European immigrants who worked the land largely for wages. The Republic continued financing immigrants, with nearly three million arriving between 1884 and 1933.8 The definition of land ownership expanded as the central government relinquished its claim to subsoil rights and ceded its lands to the states. In addition, it attempted to bolster land markets by regularizing and registering land titles and mortgages.9 Capital, too, was released by facilitating the creation of joint stock companies with limited liability. In addition, stock transactions were encouraged by permitting purchases on margin.10

30 The Financial System Rui Barbosa's Reforms The provisional republican government continued expansionary measures to stimulate capital markets. These efforts were responsible for creating the explosive economic situation of the early 1890s, which later forced state interventions. The architect of the Republic's first financial policy was the former monarchist Rui Barbosa. As minister offinanceuntil January 1891, he had to reconcile the needs of the rapidly developing and increasingly capitalist economy with the interests of the Treasury. He also had to balance the demands of the newly ascendant republicans with those of the stillinfluential monarchists. Barbosa's financial program has often been cited as an outstanding example of far-sighted, developmentalist planning, which stands in sharp contrast to the dogmatic orthodoxy of the other republican ministers of finance.11 He was supposedly the onlyfinancialleader of the First Republic who consciously broke with the basic tenets of classical economics. He denied the value of the gold standard for Brazil, because the value of the country's currency did not depend on the net international flow of gold, as classical theory would have it, but rather on the health of the total economy, internal and export. Moreover, the incessant fluctuations of exchange in an export economy negated the possibility of convertible currency.12 However, his departure from accepted economics came in fact not so much from a revolutionary's urge to break with the past to forge a modern industrial capitalist nation, as many of his admirers argue, as from the political necessity to appease the imperial elite. Barbosa reasoned that the wobbly, newborn Republic needed the support of the imperial ruling elite. The Republican Revolution after all had been more a palace coup than a popular uprising. Republicans remained in the minority throughout the country, particularly in the traditionally powerful Northeast.13 The imperial elite was intimately involved in the banking and stock market speculation. These men had to be won over. Consequently, the principal focus of Provisional Government policy was the banking system, rather than aid to agriculture.14 Barbosa undertook one of the most controversial banking measures of the Republic in January of 1890, to slake the thirst for credit that had developed. After meeting with leading bankers, investors, and merchants (not planters or industrialists), he and the financier Mayrink drafted legislation that created three regional banks of issue with unprecedented authority to emit and to invest bank notes. They received therightto issue a combined total equal to three times the total currency then in circulation. The notes were backed by Treasury bonds, not gold, and hence signified the abandonment of the gold standard. The reform envisioned these private banks guiding economic growth in the fashion of the German Great Banks

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31

rather than state-directed development.15 The banking act touched off a furor. Many republicans complained that the new banking legislation concentrated privileges in three Rio banks, dominated by monarchists. By September of 1890 the three banks, the Banco dos Estados Unidos do Brasil (BEUB), the Banco Nacional, and the Banco do Brasil (BB) controlled, through privileges and the banks they owned, 95 percent of the bank notes issued. They used the capital created by the right to issue to plunge into the stock market.16 The three banks were interrelated, as the president of the Banco Nacional and the brother of the president of the BEUB were directors of the Banco do Brasil.17 The concentration became even more overt in December of 1890, when Barbosa allowed the BEUB and the Banco Nacional to merge and raise their combined capital to two hundred thousand contos, one-third more than the capital of all of the banks in the country three years earlier. The new bank, the Banco da República, was also permitted to issue five hundred thousand contos, four times Brazil's currency in circulation at the time of the Empire's demise.18 The Banco da República fanned the flames of opposition because its president, Mayrink, was intimately linked to the monarchy. In addition, it was accused of corruption. Future president of Brazil Afonso Pena observed, "The center of all financial fraud is the Banco da República, which wants to impose itself . . . as the incarnation of the new regime, making the stability of the latter depend on the success of the former."19 The accusations of fraud did not die down after Barbosa and the other republican ministers resigned en masse in January of 1890 over disagreements with Marshal Deodoro. In fact, perceptions of the financial reforms as a monarchist plot were reinforced when Marshal Deodoro replaced the republicans, who were almost all from the Center-South, with prominent monarchists from the Northeast. The new leader of his government, the Baron of Lucena, did not pull in the reins on the galloping inflation but rather spurred it on by lending four banks two million pounds sterling, supposedly to "fortify the faith in republican institutions."20 Republicans did not believe that it was the Republic that was being protected, but rather friends of the monarchist minister of finance.21 The fall of the exchange value by one-third since the Republican Revolution, the mounting cost of living, and the growing signs of a stock market collapse ultimately provoked a combined revolt by the army and navy on 23 November 1891 to depose Brazil's first president. The effects of the first republican government's financial policy long outlived the administration responsible for it. The inflation, currency devaluation, and fraud discredited the notion of encouraging private investment banks through the issue of abundant inconvertible currency. As one critic reflected, because of the stock bubble, many people came to think of

32 The Financial System corporations as "synonymous with armed robbery."22 Dogmatic classical policies regained their previous eminence and would, for the most part, be maintained for the rest of the Republic. Floriano's Rule Marshal Floriano Peixoto's administration (1891-1894) represented a marked change from Deodoro's two-year rule. Floriano came to base his regime principally on politicized junior military officers and militant republican members of the middle class, particularly from the Federal District. His three years in office evidenced policies consciously directed at reforming the structure of the economy through aid to the middle class and industry. Nonetheless, disgusted by the corruption and inflation engendered by the Encilhamento, his ministers of finance returned to orthodox monetary policies. They also initiated the process of state direction of financial markets, which continued for the rest of the Republic. To understand the political forces that shaped Floriano's financial measures, it must be remembered that, although his administration enjoyed perhaps greater autonomy from the monarchist and republican oligarchies than any other government of the First Republic, it still had to make concessions to them. In addition, military officers and the urban middle class sometimes called for contradictory policies. Although Floriano was a traditional career officer and only a very late convert to republicanism, his strongest support came from reform-minded young military officers. During the chaos that reigned following the Empire's collapse, these officers were able to exercise disproportionate influence, capturing the governorships in more than half of Brazil's states. They believed that it was their duty to restructure the country.23 They agreed with Colonel Serzedelo Correia when he bemoaned the fact that, although Brazil was politically independent, "in terms of economic interest [it was still] a colony."24 The officers urged Floriano to stimulate the development of the internal economy through an activist, centralized state, thereby strengthening national sovereignty and increasing social mobility. Floriano also allied himself with the urban middle and working classes, which constituted the heart of the radical, nationalistic republican movement known as the Jacobins. Recent urbanization and the politicization sparked first by the abolitionist movement and then by the Republican Revolution gave birth to this group. So significant did they become that Joaquim Nabuco, Brazil's first ambassador to the United States, described with alarm their "predominance and ascendancy."25 Although they formed an important support for Floriano's government, as urban consumers they were a potential source of social unrest. Already in 1888 the minister of the empire admitted that he was "concerned with the growing pauperism of the

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33

working classes, whose salary in general only suffices to live poorly and often is insufficient."26 By 1892 a doubling in the cost of living led a French resident to complain that Rio was more expensive than Paris. Floriano's minister of justice feared that high prices would create enemies for the regime.27 Such fears led to a financial policy that appeared in many ways a return to that of the Empire. At first glance this seems a strange position for a government that has been seen as the representative of a nascent industrial bourgeoisie. All three ministers of finance who served under the "Iron Marshal" (Floriano's nickname), Francisco de Paula Rodrigues Alves, Inocêncio Serzedelo Correia, and Felisbelo Freire, were strong believers in a balanced budget, a reduction in the money supply, and a return to the gold standard. Despite the fact that the first supposedly represented Paulista coffee interests and the second and third represented industrial and urban interests, there was a surprising degree of coherence in their outlook and policies.28 Their rationales, however, differed. Rodrigues Alves was concerned with the depreciation of the milréis, the inflation rate, budgetary deficits, and the decline in foreign investment. A sound export economy relied on foreign capital, free trade, and a comparative advantage for the international sector. A balanced budget would lead to less pressure to print money and hence a decline in the inflation rate. It would also restrain the speculative investment pervading the internal economy. Consequently, capital would resume flowing to agriculture. At the same time, the decline of the money supply and the inflation rate would strengthen the milréis, make the public debt easier to service, and enhance the economy's attractiveness to foreign capitalists. A return to the gold standard would then be possible. With the gold standard, the inflationary monetary policies of Barbosa and Lucena would not be repeated. Rodrigues Alves also believed that maintaining the gold standard was essential to keep the public trust, as the public accepted money as the equivalent of gold. Excess issues of paper money driving down the gold value of the milréis were merely a tax on the wealth of money holders and creditors. Serzedelo Correia and Freire were moved by concerns about covering the Federal Treasury's debt, maintaining its foreign credit, and reducing the spiraling cost of living for urban consumers. Whereas their economic stand would appear atfirstsight to injure the industry these two ministers sought to foster, in reality there was no such contradiction. As chapter 5 explains, because of the large import component of inputs for Brazilian industry during these years, even many industrialists denounced the decline of the milréis. Moreover, the Encilhamento seemed to many of Floriano's followers a conspiracy against the Republic rather than a program to bring about Brazil's economic liberation. A return to economic orthodoxy was one

34

The Financial System

way of wresting control of the economy from the alleged conspirators. Floriano's adminstration's attempt to balance the budget and reduce the money supply was not completely successful. Although real federal spending declined, despite the tremendous expenses of fighting a civil war in the country's South and a naval revolt in Rio de Janeiro, real income fell faster, largely because many taxes formerly collected by the central government passed to the states in 1892. Although his government was unable to reduce the money supply, due to the demands of the defense budget, it did slow the real growth of the money supply to one-quarter that of its predecessors.29 Floriano's administration had its greatest success in controlling the banking system. Initially, the Treasury had to extend sizable loans to banks when the Encilhamento collapsed in 1892. Many banks were overextended because of investments in dubious enterprises and the acceptance of questionable stock as loan collateral.30 At the end of 1893, however, the federal government strengthened its role in financial markets when the two largest banks in the country merged to form the Banco da República and all other banks lost the right to issue currency. The new bank's president became an appointee of the Republic's president. Its vice-president as well as one of the directors were also chosen by the president. In addition, the Banco da República became the official government agent in paying the international debt: it received Treasury surpluses in deposit and it extended advances to the Treasury on the security of future revenues. At the same time, Congress authorized it to issue one hundred thousand-conto "aid to industry" bonds (discussed in chapter 5). With these measures, the Banco da República virtually became a public institution.31 Floriano's merger represented a seizure of financial power by the state, rather than its concentration in the hands of a few bankers, as had the previous merger under Deodoro. Indicative of this is his treatment of two of the most important financiers of the time. Mayrink was suspected of monarchist sympathies and was forced to leave the presidency of the Banco da República. He went into exile in the country's interior. The banker Conde de Leopoldina was exiled to Amazonas for alleged complicity in a monarchist plot. In the process, the government opened bankruptcy proceedings against him and caused him to lose most of his fortune.32 Floriano's three years in office contrast with the rest of the First Republic. Guided by army officers, who saw the federal government as a powerful agent for development, and by members of the urban middle and working classes, who also wanted to break with the existing oligarchic order, Floriano attempted to alter the political balance of power. But the Iron Marshal faced inherited pressures from European investors, a crumbling economy, and revolts and civil war. His tenure in office was too short, his

The Financial System 35 support too weak (as he still had to appease key members of the rural oligarchy and the armed forces were divided), and his resources too scarce to realize thoroughgoing transformations. He stepped down voluntarily in November of 1894, handing the presidency to the Paulista lawyer and historical republican, Prudente de Morais Barros (1894-1898). Paulistas Take Over Prudente's ascendancy to the presidency represented the agrarian oligarchy's return to undivided hegemony, as Paulistas governed Brazil for the next twelve years (1894-1906). Their assumption of virtually all national power did not signal any essential changes in financial policy, however. The representatives of the agricultural bourgeoisie continued the project initiated by industrially minded politicians under Floriano. They set about correcting the economic ills that proliferated during the Encilhamento by continuing the return to economic orthodoxy. This process forced ever greater state involvement in financial markets. Prudente, and his successors, wanted to increase the value of the milréis, balance the budget, and return to convertible currency by restricting the money supply. Celso Furtado has shown that a weak, inconvertible milréis benefited exporters, so as representatives of Paulista planters, their advocacy of a valorized milréis seems puzzling. When international coffee prices slumped, their milréis earnings fell much less because of the currency's devaluation; meanwhile, planters' costs, which were far less tied to foreign currency, rose much more slowly. This was essentially a socialization of losses whereby the rest of society subsidized exporters. Moreover, as the Commercial Association of São Paulo pointed out, a weak milréis did not reduce revenues in exporting states. São Paulo's provincial revenues grew proportionately with the devaluation because they depended on exports rather than imports. The province's expenditures rose much more slowly because, unlike the federal government, it had few obligations payable in gold, as its foreign debt was still small and it awarded foreigners few concessions with interest guarantees.33 The Paulista presidents based their support of a strong currency on the same grounds Rodrigues Alves had as minister offinance:the gold standard was necessary for the successful international division of labor; capital and goods would flow freely and abundantly only if payment in gold were guaranteed; and a convertible currency protected the value of themilréisand kept down the cost of living. The integrity of the Treasury was also a key concern. The servicing of the foreign debt was a question not only of national honor and development, but of national sovereignty as well. Europeans were dividing up Africa and Asia in the last quarter of the nineteenth century, and the United States was

36

The Financial System

increasing its Latin American presence. It was not suprising that Brazilians took seriously the Rothschilds' response to President-elect Campos Sales when he discussed the possibility of declaring a moratorium on Brazil's debt the British bankers threatened "that besides the complete loss of the country's credit [if it suspended debt repayment] the measure could greatly affect Brazil's sovereignty, provoking reactions that could arrive at the extreme of foreign invasion."34 Prudente was unable to realize the financial reforms he envisioned because of the political and economic crises he inherited. The civil war in the South was explosive, though winding down. Oligarchic in-fighting in the states often flared into open warfare. And the Jacobins and military still mobilized a substantial following in opposition to Prudente, which became inflamed during the campaign against the religious fanatics in Canudos. The economy also slumped seriously. The worldwide depression that struck in 1893 made Brazil unattractive to foreign investors and helped drive down the price of coffee by two-thirds. That in turn pushed the milréis to what was then an all-time low, 7.2 pence in 1898. As a result, by 1898 the foreign and internal public debt consumed over half of the federal budget and led to a budgetary deficit three times greater than any previous deficit. Concurrently, the cost of living soared 60 percent between 1895 and 1898.35 Because of these political and economic woes, the only economic proposal that Prudente carried out was the restriction of the growth of the money supply. In real terms, virtually no new money was created. To put the prestige of the government behind the battered milréis, the Treasury resumed the monopoly of currency issue. The Banco da República's banknotes were replaced with Treasury notes. In return, the bank had to transfer most of its assets to the Treasury to cover part of the value of the bank's notes. The Federal Treasury received a large block of stock in the Lloyd Brasileiro shipping line and the Sorocabana Railroad. This eventually forced a federal takeover of the former in 1913 and the sale to the State of São Paulo of the latter.36 Aside from these measures, Prudente failed to enact his program. Plagued by disaster, he left office disheartened and discredited. The task of extricating Brazil from the financial quicksand fell to his successor, Manuel Ferraz de Campos Sales (1898-1902), who found a political formula for reform. Campos Sales, like Prudente, was a former governor of São Paulo and a "historical republican." He also represented the same political constituency as his predecessor. He had easily triumphed over Lauro Sodré, the Jacobin candidate, in the 1898 election. A U.S. consul, reporting on the election, observed that on one side was Sodré and the Jacobins, who supported "the national against the foreign element, [gave] preference to the military over the civilian [and were] anti-monarchist." One the other side, "the sympathy of the conservative element and of foreigners who had

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37

interests in the country" was with Campos Sales.37 But by 1898 Jacobin enthusiasm had greatly subsided. The civil war in the South was over, Antônio Conselheiro lay dead, Canudos was in ruins, and civilians had consolidated their power in most of the states. Campos Sales's formulation of the "politics of governors" gained the support of the state oligarchies. Campos Sales is often regarded as the savior of Brazilian finances. He succeeded in balancing the budget two out of his four years. He reduced the money supply and raised the value of the milréis. Most important, he pulled Brazil back from the precipice of financial collapse principally through the 1898 Funding Loan. The British loan consolidated the foreign debt, provided a three-year moratorium on interest and railroad profit-guarantee payments, and gave a thirteen-year grace period on amortization. In return, the Brazilian government had to withdraw from circulation and burn the milréis equivalent of the paper bonds it issued between 1898 and 1901 in lieu of interest payments. It also had to refrain from contracting further foreign loans until 1901. The Rio customs house was pledged against the loan. Foreign banks oversaw the operation to ensure the Treasury's compliance. In essence, the federal government had to offer a great deal of control over its economic policies and, complained the loan's critics, it also had to cede national sovereignty to foreign bankers.38 Campos Sales did not find the conditions especially onerous; he had wished to retire paper money from circulation anyway. He was supported on the Funding Loan by merchants and foreign investors. Coffee fazendeiros generally opposed the loan, as did industrialists. Urban consumers were split: some objected to British control of Brazilian monetary policy; others applauded the potential rise in exchange. Campos Sales's administration introduced a series of measures to guarantee that the Funding Loan would have a permanent effect rather than serve merely as a palliative. The Treasury cut back sharply on capital investments and stepped up debt repayment. Congress established an amortization fund to retire additional currency. To prohibit future Treasury issues, all the laws giving the government the right to create paper money were repealed.39 The result was a 13 percent drop in paper money, a sixfold increase in the trade surplus, and a doubling of the milréis's value.40 It should be pointed out that the milréis's resurrection did not stem simply from the reduction of paper money, as was often maintained. The end of the world depression in 1897 freed European capital for export, which helped Brazil show a positive balance of payments. This was in sharp contrast to the negative gold flows that had been the rule since the Empire. At the same time, exports grew by a fifth, as a rejuvenated world economy demanded more Brazilian coffee and rubber and imports fell by 14 percent because of a recession within Brazil.

38 The Financial System Despite the resurrection of the milréis, the short-run consequence of Campos Sales's policy provoked a serious economic situation. According to one Rio newspaper in 1901, the policy led to "three years of complete stagnation and the unquestionable decline of industrial productivity."41 A sharp drop in the means of payment restricted short-term credit. Campos Sales was attacked for his actions in the press, by commerce, by planters, and even by the São Paulo Republican party. He declared to a friend in 1899 that "my government is better [received] abroad than here."42 Because of the country's "moral responsibility" to its creditors, it had to "sacrifice" somewhat. Campos Sales also sacrificed. His coffee fazendas, too, suffered greatly from the shortage of credit. His minister of finance, Joaquim Murtinho, was the architect of the program, despite being one of the directors of Maté Larangeira, the largest maté tea exporter in the country. The appreciating currency also cut into his milréis earnings.43 The direct result of the currency contraction was one of the worst banking crises the country had known. It was touched off in 1900 when the Ministry of Finance settled its accounts with the Banco da República. The ministry agreed to accept 50,000 contos in payment for the bank's debt of 186,000 to the Treasury, much of it still left over from the 1896 conversion of bank notes. This incredible windfall for the bank resembled agreements that the Treasury had made with other banks. However, as the written-down debt came due soon, the agreement proved to destabilize rather than strengthen the bank. The Finance Ministry's action was motivated by a desire to maintain the bank as a private enterprise, but inadvertently led to its nationalization. The bank's weak position due to small reserves and deposits and large debts was further undermined by its own exchange speculation. It requested Treasury funds to stem the tide of withdrawals that threatened the bank. From March to September of 1900 the bank received about nine hundred thousand pounds and ten thousand contos in federal loans, yet this proved insufficient. The bank's directors called for the Treasury to issue paper money, but Murtinho remainedfirmlyopposed. When the bank proved unable to meet the run on its deposits and eight other banks temporarily closed their doors, the federal government intervened. Because the Banco da República owed the Treasury large sums, the minister of finance reacted. As the largest native bank and the most active in the exchange market, it was simply too important to sacrifice to Murtinho's cherished law of survival of the economicallyfittest.44The continuing problems of thefinancialsector and a changing perception in government quarters prevented it from operating again as a private bank. The solution was the reorganization of the Banco da República by the Rodrigues Alves administration (1902-1906) in 1905. The Paulista planter

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39

attempted to implement the policies he had pursued as Floriano's minister of finance. The nationalization of the country's largest bank, now renamed the Banco do Brasil, did not contradict his liberal stance. The federal loan to the bank was transferred to share capital, with the government now holding almost a third of the shares. The former stockholders of the bank received the same amount and the rest went up for public sale. The capital of the new institution was 30 percent lower than that of the Banco da República. Obviously, the Banco da República's stockholders lost a tremendous amount of control and "paper" capital in the transaction, but they agreed to it because of the company's unstable finances.45 The new Banco do Brasil became a mixed enterprise with the government in the dominant position. The bank continued to be the Treasury's agent in the exchange market, to receive Treasury deposits, and to extend loans to the Treasury, as had the Banco da República. If conditions became favorable for a return to the gold standard, the bank would receive the monopoly of issue. Although the Banco do Brasil would continue its commercial operations "attending to the needs of industry and commerce," this aspect of its operations was subordinated to its public functions. The new institution was prohibited from purchasing stock in other companies, as its predecessor had done actively, and it could not extend loans for periods of more than six months. It had to maintain a high liquidity level to allow the bank to finance the Treasury's needs and to allow it to make countercyclical loans in times of crisis.46 Although the nationalization of the Banco da República was undertaken in part to combat the strong position that foreign banks had in the financial market, it should not be understood as a nationalistic move. In fact, minister of finance Leopoldo Bulhões initially sought foreign capital, which would provide as much as one-third of the bank's capital. He only changed his mind because the foreign capitalists who were intending to invest were "very demanding."47 Not only was the reorganization of the bank not nationalistic, it initially was to be accomplished using only private capital. The minister of finance agreed to turn the public funds lent to the Banco da República into share capital at the request of the bank's stockholders. Stock investors found the reorganization promising. The Banco do Brasil's stock quotations rose from 49 milréis in 1905 to 155 in 1906, and reached 250 in 1908. 48 The reorganization was also sought by planters, who wanted the banking system put in order after the years of uncertainty and bankruptcy since 1900. The rest of the financial system gained confidence with the normalization of the new Banco do Brasil and the government guarantee of its continued operation. This eased commercial credit, which eventually filtered down to the planters. The Banco da República's major private

40 The Financial System stockholders had been some of Rio's largest banks: the Banco da Lavoura e do Comércio, the Banco do Comércio, and the Banco Comercial, along with thefinancierthe Conde de Figueiredo. They embraced the change because it would calm the banking system, as the new bank would "be able to exercise the functions of a central bank, having available abundant capital to rediscount the paper of other banks, make advances to other banks, and finally aid them in moments of crisis."49 The creation of the Banco do Brasil did not conflict with liberalism. It would serve as an arm of state policy by exercising its impressive market power bolstered by the funds of the Treasury. The plan called for state capitalist profits from the bank to be invested through the amortization fund in returning to convertibility. Thus state capitalism was to be used to bring about an essentially liberal reform. Moreover, the Banco do Brasil did not receive any specially legislated privileges.50 The nationalization of the Banco do Brasil was indicative of the apparent inconsistencies in the financial policies of the Paulista presidents. Between 1894 and 1906, they had succeeded in stimulating a 35 percent appreciation of the milréis, balancing the budget five times in twelve years, and sharply reducing the money supply and the inflation rate. They, thereby, set the Treasury's finances in order and attracted a massive infusion of foreign capital. At the same time, they clashed sharply with their fellow coffee planters and drove many of them to ruin. Moreover, Morais, Campo Sales, and Rodrigues Alves fashioned their return to economic orthodoxy and laissez faire through a most circuitous route: they nationalized the country's largest bank, awarded the Treasury the monopoly of issue, erected a high import tariff, and raised internal taxes. A New Direction: The Caixa de Conversão Paulista control ended with the election of the Mineiro Alfonso Pena in 1906. Pena, a former governor of Minas Gerais, differed from the Paulistas in ways other than origin. Unlike Prudente and Campos Sales, he had been a prominent member of the imperial Conservative party. He also was not as strongly tied to agrarian interests as his predecessors; he was an industrialist and mine owner, not a fazendeiro. Indeed, Mineiro politicians in general were much less involved in the export sector than were Paulistas. Pena's administration represented a merging of the interventionist tendencies of the Empire with the new realities of the Republic. The imperial counselor allied himself, as president, with a group of young men, known as the "Jardim de Infância" (kindergarten), ardent republicans who were favorable to some forms of state intervention.51 He found the economic situation and political support conducive to financial reform. Despite lower coffee prices, total exports continued the

The Financial System 41 ascent begun in 1900 because of expanding rubber markets. Large trade surpluses resulted. With the end of the world depression and the stabilization of Brazilian finances, foreign capital doubled between 1902 and 1914: British investments rose from $660 million to $1,119 billion, French capital from $140 million to $780 million.52 The internal economy also experienced considerable growth. The health of the economy led to the strongest milréis since 1890, frequent budgetary surpluses, and a stable cost of living.53 Such propitious circumstances allowed Pena to increase the money supply and commercial credit while he stabilized the exchange rate, returned to gold-backed currency, and kept down inflation. The planters, merchants, bankers, and industrialists who had complained of the shortage of credit and the appreciation of the milréis that resulted from the policies of the Paulista presidents were thus placated. Foreign financiers also approved of Pena's financial program because it rested on a stable milréis increasingly pegged to gold. The foundation of Pena's financial restructuring was the Caixa de Conversão, a currency exchange that issued convertible notes at better than market rates in return for foreign gold-backed currency. It employed the millions of pounds sterling it quickly amassed in maintaining the milréis at a level more than 50 percent below the official par level. It thus broke with the efforts of the Paulista presidents who had forced great sacrifices on the country in attempting to return to par. In the words of Rodrigues Alves, minister of finance, the Caixa "paralyzed the work of his [Pena's] predecessors."54 Indeed, Rodrigues Alves, himself a planter, had vetoed the Caixa, despite the cries of planters and merchants for the institution. He believed that by keeping exchange below par, the institution would scare away foreign investors, create urban unrest by raising the cost of imports, and in essence tax wealth in monetary form by maintaining a low currency value.55 It fell to Pena, a factory and mine owner, to award planters the Caixa. The Caixa did its job effectively. The exchange rate hovered around 15 pence, even though the great influx of foreign investments between 1902 and 1914 created pressure for a higher rate. In 1910, when the Caixa momentarily closed its doors, the exchange rate shot up to over 18 pence. A heated debate ensued. Paulista planters sought a return to 15 pence; however, the minister of finance, concerned that the Funding Loan's thirteen-year grace period on amortization was to end in 1911, wanted 18.25. An agreement was reached by lifting the quotation to 16 pence. It remained at this level until 1914, when a run on the Caixa's gold forced it to close its doors permanently.56 Clearly, the Caixa was not a radical move. Like the Banco do Brasil, the Caixa could only use market operations to affect the exchange rate and,

42

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hence, had no inherent advantage over any other actor in the market. Moreover, its intentions were to aid the export economy, not to strengthen the state. At the same time, it was seen as a means of returning to the gold standard. As no paper money had been issued since 1898 (indeed, much had been retired) and would not be until 1914, the Caixa's convertible notes were slowly replacing inconvertible paper. By 1912, 40 percent of the currency in circulation was convertible.57 Brazil would never again be as near to complete convertibility. The recently nationalized Banco do Brasil worked with the Caixa to stabilize the exchange rate. Prior to its reorganization, the bank had already served as the federal government's agent in exchange transactions; it consequently became, according to the head of its exchange section, "the supreme arbiter of the exchange market in Brazil."58 To enhance the bank's ability to compete with foreign banks in setting the milréis's rate, Congress awarded the reorganized institution a monopoly of vales ouro (gold checks), which importers had to purchase to cover a portion of customs duties. This guaranteed the Banco do Brasil ample foreign currency. In this role, the Banco do Brasil's policy was dictated by the minister of finance, not by the bank's private stockholders. Its principal objective was to enforce financial policy, not earn profit (though these operations would prove profitable). Minister of Finance Bulhões, a staunch advocate of private enterprise and laissez faire, believed, along with other liberals, that government intervention in the exchange market not only did not contradict liberalism, but was essential for its efficient operation: "It is essential to guarantee the efficiency of the redemption policy [of paper money] that the government intervene in the gold market to regularize the functions of supply and demand; this is because, due to abnormal circumstances, the metal [gold] ceased being the agent of exchange, the symbol of value, and became an easily monopolized good."59 Concurrent with entering the exchange market, the Pena administration attempted to inaugurate a federal mortgage bank along the lines of those in Argentina and Uruguay. Congress passed the bank's statutes, though it never came into being. The Banco do Brasil did furnish short-term agricultural credit, but it lacked the resources to provide the capital necessary for the struggling sector. São Paulo and Minas Gerais were more successful in encouraging the creation of mortgage banks, but funds were far from adequate.60 Although agriculture fared well by Pena's exchange and monetary policies, it would have to wait until the 1920s for ample long-term credit. The expansionary financial policies of the Pena administration continued until World War I. After Pena died in office in 1909, his vice-president, Nilo Peçanha, pursued similar goals. Peçanha, son of a baker in the state of Rio de Janeiro, was thefirstrepublican president not to have held high office

The Financial System 43 in the Empire. An ardent abolitionist and Jacobin as a young man, as governor of Rio de Janeiro he witnessed the decline of the province's export economy. This convinced him further of the need for the state to forge the development of the internal economy. As president he spent most of the country's gold reserves defending a low milréis to protect domestic producers. He also expanded the money supply at a rate faster than at any time since the Encilhamento and he boosted federal spending.61 Nilo's successor, Marshal Hermes da Fonseca, was one of only two presidents elected during the First Republic not from São Paulo or Minas. The candidate of Rio Grande do Sul, a state oriented toward the internal market, and of the army, Marshal Hermes reflected the interventionist preferences of both. Until the rubber boom collapsed in 1912, the Federal Treasury pumped a record volume of money into the economy. Hermes also carried on the struggle to impede the valorization of themilréis.The last year of his administration was spent in retrenchment, however, as exports slumped and European capital, frightened by the Balkan crisis,fledBrazil.62 Ironically, in the 1906-1914 period presidents not directly tied to the coffee-export complex broke with the orthodox monetarist practices of the three Paulista presidents. Afonso Pena, Nilo Peçanha, and Hermes da Fonseca fulfilled coffee fazendeiros' wishes for more credit and a relatively inexpensive milréis, which fellow Paulistas had refused. The federal government in the years before World War I was able to compromise between depressing the value of the milréis and returning to the gold standard while stimulating unprecedented economic growth and punctually servicing the foreign debt. These accomplishments were due to an unusually prosperous world economy, which provided an enormous influx of capital. Although the three presidents came to the aid of the stricken coffee sector, that was not their principal goal. All three administrations sought to encourage domestic agriculture and industry. However, the growth of the domestic market did not lessen Brazil's dependence on the world economy, as the internal spurt was fueled to a great degree by foreign capital. Once European capitalists became alarmed by impending war and withdrew their capital from Brazil, the Brazilian economy fell into a recession that demanded a change in economic direction. The Effects of World War I The First World War provoked important changes in the Brazilian state's role in the economy, as exports faltered and foreign capital halted. The European conflict also sparked nationalist passions, convincing many in Brazil's ruling class that the state needed to take a more active role in protecting and developing the economy. As a result, federal interventions, particularly those employing the Banco do Brasil, increased rather dramatically during and after the war.

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The world conflagration threatened the basis of the traditional economic policy of the republican state. The fall of exports reduced import capacity by almost half during the war years, thereby diminishing federal revenues. Because of the European hostilities, the minister of finance could not borrow new capital abroad to compensate for the decline. The problem became so acute that the federal government had to negotiate another funding loan in 1914, two years after the moratorium from the first ended.63 The president who confronted this grim situation was the Mineiro Wenceslau Brás. Though himself a factory owner, he came from a family of coffee fazendeiros. Nonethless, his initial response to the crisis was to attempt to maintain economic orthodoxy by cutting expenses and domestic borrowing, not by heeding planters' cries for more money. Although he later had to yield to circumstances, his administration's average real expenditures were below those of the prewar years.64 Despite Brás's desire to defend the value of the milréis, pressure for expanded currency became overpowering. Bankers, merchants, planters, and industrialists all complained that the exodus of European capital was causing a shortage of credit. Ignoring strenuous objections from his predecessors, Brás departed from the program that had reigned since 1891; the Treasury printed unbacked currency, almost doubling the money supply in a couple of years.65 The disruption of the international economy during the war caused additional departures from traditional policy. Isolation from traditional markets heightened Brazilian awareness of the country's economic and defensive vulnerability; the absence of foreign investment during the war convinced many that the state had to play a larger role in the economy. The Federal Treasury's financial woes and the new current of economic thought encouraged the federal government to increase its presence in the financial system. It chose to use banks, particularly the Banco do Brasil, as the principal vehicle. Banks, mostly private ones, received one hundred thousand contos of the currency issued in 1914. The funds were employed in discounts of commercial and government paper, not capital investments. The loan was somewhat nationalistic: only foreign banks with two-thirds of their capital paid up qualified. As a result, only two foreign banks qualified and received only 6 percent of the loans.66 The next year Congress authorized the Treasury to issue 350,000 contos, mostly to cover the Federal Treasury's debt. Of the total, the Banco do Brasil received 50,000 to make discounts and to rediscount the notes of other banks, thereby increasing commercial credit. Unlike in 1914, the Banco do Brasil was now the only bank to receive federal funds. Other banks could only take advantage of them by rediscounting through the Banco do

The Financial System 45 Brasil. The legislation reconfirmed the semiofficial bank's privileged position.67 In 1916 the new relationship between the bank and the Treasury was further reinforced. Congress had provided fifteen thousand contos to assist the rubber industry, and the government's bank received a large part of the funds. The bank also funneled Treasury funds to São Paulo to finance the second valorization of coffee.68 Two years later the Banco do Brasil received additional assistance from Congress, this time to aid the bank in bolstering the exchange rate. The government had still not abandoned hope of returning to the gold standard, despite the wartime experience. Indeed, the ministers of fazenda in 1917 and 1918 had long been among the gold standard's staunchest defenders. In the last year of the war, Congress decided to begin purchasing all nationally produced gold for a reserve fund. It also passed legislation prohibiting gold shipments to Germany, and required Treasury approval of all international exchange shipments. Although weakly enforced, the move did signal the government's willingness to intervene in this vital area, even if the ultimate aim was the return to the gold standard and laissez faire.69 Although the government did not seize the opportunity provided by the war to restructure the economy (as chapter 5 demonstrates), there was significant reform in the financial sector. State action during the war resulted in a healthier national banking network, which was better able to compete with its foreign counterparts. Between the prosperous days of 1912 and war-torn 1919, commercial note discounts doubled and Brazilian banks increased their participation from 56 percent to 74 percent of the total. Loans grew 170 percent in that time, with national banks going from 49 percent to 57 percent and deposits expanded 130 percent. Largely due to the state's intervention, the banking system maintained prewar levels of currency velocity and by 1918 had recovered the low cash-on-hand-todeposits ratio of earlier years. This demostrated general confidence in the system.70 The Postwar Years After the war the federal government expanded on the precedents set during the conflict by broadening its presence in the financial system. Its principal agents were the Banco do Brasil and the Caixa de Estabilização (a resurrection of the Caixa de Conversão). The state sought to strengthen national banks and control foreign ones to stabilize the economy and its own finances. The recovery of coffee prices after the war guaranteed that the banking system would primarily serve the export economy. The 1918 presidential elections demonstrated that, despite the dislocations in the international economy and the spurt in domestic production, planters

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had not lost their hegemony nor had classical economics lost its appeal. Rodrigues Alves, one of the leading champions of orthodoxy, was reelected. When he died before taking office, the Mineiro Delfim Moreira served as interim president until Epitácio Pessoa was elected in 1919. Pessoa, a sugar planter from northeastern state of Paraíba, entered the presidential palace through compromise. Being from a poor, politically insignificant state, he depended on Paulista support to govern. Consequently, the bulk of his program was directed at meeting the demands of the Center-South, though he did initiate the largest drought relief program the Northeast had ever received. Pessoa inherited a precarious economy. A high domestic inflation rate and a sharp drop in the milréis during the second half of 1920 encouraged banks to keep on hand almost three-quarters of their cash deposits. In turn, the money supply fell 2 percent; commerce, agriculture, and industry appealed for credit. The Pessoa administration responded in 1920 by authorizing the Banco do Brasil to open a rediscount section—the Carteira de Redescontos— which could issue bonds up to one hundred thousand contos to rediscount notes from other banks. São Paulo's governor enthusiastically endorsed the Carteira as "the permanent defense of national production."71 Its director was chosen by the republic's president and its activities were closely scrutinized by the Ministry of Finance. The Carteira was the first step in realizing the long-time aim of turning the Banco do Brasil into a central bank. The Carteira's notes outstanding reached 10 percent of currency held by the public plus demand deposits in commercial banks in 1922, but the Rediscount Section had an even greater impact than the figures suggest. Because the Banco do Brasil now extended attractive terms for rediscounts, private banks could reduce their loans receivable and, hence, offer more new loans. The Banco do Brasil's president estimated that the rediscounts freed from bank vaults in 1921 totaled four hundred thousand contos. During the Carteira's lifetime, commercial banks' ratio of cash-on-hand to short-term deposits fell by more than 60 percent and commerce benefited from the credit growth. However, the Carteira did not ameliorate the regional concentration of banking. The Federal District received 62 percent of the rediscounts and São Paulo gained another 15 percent.72 National banks in these two areas were the Carteira's principal beneficiaries. Foreign banks tended to use their home facilities for rediscounts. Besides, many foreign banks could not turn to the rediscount agency because they had not invested the required five thousand contos in Brazil to qualify. The Brazilian share of total loans, note discounts, and deposits—which had been one of the lowest on the continent—rose from about 55 percent in 1920 to nearly 70 percent in 1923. 73 Amplifying the

The Financial System

47

discount facilities of the national banks was part of the larger policy to increase control over foreign banks. Exchange transactions and the export of gold had first come under federal supervision during the war. A banking reform in 1921 continued the wartime policy of approval for the exportation of precious metals. It also established a general inspectorate of banks to oversee the exchange operations.74 These financial measures were part of a wider strategy directed at protecting the economy from the vagaries of the world economy through government intervention. Congress passed the ill-fated Permanent Defense of Coffee Program, which would have institutionalized federal aid to coffee (discussed in chapter 3). The key element in the program was the transformation of the Banco do Brasil into a central bank with a monopoly of issue. Already in 1917 the heads of the Sociedade Nacional de Agricultura, the Centro Industrial, and the Associação Comercial joined with the presidents of other organizations to suggest that the bank become a central bank. They sought an institution that could regulate the money supply quickly, according to the demands of the market. This meant essentially an increase in the currency. Paulistas believed that a bank empowered to issue currency according to economic criteria rather than the political guidelines of the Treasury was necessary for the defense of coffee. São Paulo's governor, Washington Luís Pereira de Souza, declared that "a bank of issue is the essential point [in the platform of Arthur Bernardes]."75 In 1923 Congress awarded the Banco do Brasil the monopoly of issue. The bank clearly stood at the center of the financial system. It continued to be the largest commercial bank in the country, dominated the exchange market as the Treasury's agent, and served as the principal rediscount facility. As part of the restructuring of the banking system, Congress authorized the creation of the National Mortgage Bank. Despite Mineiro opposition, Paulistas succeded in pushing through legislation that called on the Treasury to invest fifty thousand contos in the institution. It could, in turn, float mortgage bonds—an instrument that had proved to be totally incapable of attracting capital during the Republic—of up to one million contos to lend to agriculture, industry, railroads, or mines. The mortgage bank was to be headed by the president of the Banco do Brasil; the other five members of the board of directors were also to be chosen by the president of the Republic and subject to the minister of finance.76 The Banco do Brasil came under greater state control with the reform. Its capital increased from seventy thousand contos to one hundred thousand, as the Treasury took the new issue and assumed the position of the majority stockholder.77 Unfortunately, the Banco do Brasil did not come to play the dynamic role that business leaders had envisioned nor did the mortgage bank come into

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existence. President Arthur Bernardes of Minas Gerais chose to fight the depreciation of the milréis rather than the recession that began. Between 1922 and 1923 the country experienced the second-highest one-year jump in inflation and the lowest exchange rate of the First Republic. As a consequence, the foreign debt in milréis terms ballooned, and the federal budgetary deficit soared. The situation was particularly alarming because Brazil's debt moratorium from the second Funding Loan was to end in 1927 and the Federal Treasury's finances were chaotic. Bernardes wrote, "The financial situation in which the country finds itself is disastrous, much worse than we thought."78 The country needed more foreign capital for the defense of coffee, yet European and North American bankers were reluctant to cooperate. A British financial mission arriving at the end of 1923 demanded strict economy and monetary conservatism to improve Brazil's credit rating. It urged the federal government to sell its shares in the Banco do Brasil, the Central Railroad, and the Lloyd Brasileiro shipping company. Bernardes agreed with the British analysis. He blamed the milréis's depreciation on the notes that the Carteira de Redescontos had issued. To meet the crisis, he virtually stopped federal spending on public works, killed the mortgage bank, and restricted the Banco do Brasil's issues. Rather than providing easy credit, the bank strove to "promote the revival [saneamento] of the currency" to return to convertibility.79 In this, Brazil was following a worldwide trend back to the gold standard. The trend was apparent throughout Latin America; central banks were founded in Bolivia, Chile, Colombia, Ecuador, and Mexico in the 1920s.80 The advantage of bank issues rather than Treasury notes appeared obvious. The bank supposedly operated according to the economic determinants of the marketplace. The Treasury's movements, however, were dictated more by political and budgetary criteria. The Banco do Brasil was to expand the amortization fund and to retire unbacked currency, thereby increasing the milréis's value. The bank's Paulista president, Cincinato Braga, noted that the Banco do Brasil was so interested in "reducing our currency to the minimum possible" that in the middle of a recession in 1924 it raised its rediscount rate.81 Nonetheless, the bank expanded the money supply, setting off a serious conflict between Bernardes, Minister of Finance Sampaio Vidal, and Braga. Bernardes believed that these Paulistas were subverting his deflationary policy to increase credit to agriculture and commerce. Braga responded that he had issued currency to cover the bank's obligations, not to increase commercial credit. The Treasury still had not repaid the federal debt to the Banco do Brasil incurred during the Pessoa adminstration. As this reached a hefty total of 826,000 contos, the bank found itself in a liquidity crisis, which it met with the issues. Bernardes did not accept the argument; he

The Financial System

49

replaced Braga and the minister of finance with two Mineiros, who promptly began to cut loans back sharply and withdraw the bank's issues. As a result, during the Banco do Brasil's four years as a bank of issue (1923-1926), currency issues actually declined 2 percent—the largest decline of the century up to that point. Clearly, the bank was not the independent economic agent that Congress and the business community had desired.82 Bernardes succeeded in bringing down the inflation rate and in raising the exchange rate by 25 percent between 1923 and 1926. The Jornal do Commércio, the conservative oracle of the commercial and financial community, applauded his efforts to decrease prices, balance the budget, and increase Brazil's international prestige. These were attained at the cost of economic stagnation between 1924 and 1926 and the hostility of the planter and commercial communities. Bernardes's success was also partly due to the secret and unconstitutional issuing of short-term promissory notes, which greatly expanded the floating debt.83 The Bernardes administration's decision to take a stand that conflicted with the desires of exporters was not based simply on foreign pressure and faith in orthodox economics. As governor of Minas Gerais, Bernardes had worked hard to stimulate exports; however, now he faced the most severe political unrest in thirty years. Urban strikes, a revolt in São Paulo, the Prestes Column marching through the interior, and military disaffection rocked the country. Therefore, Bernardes sought low prices for the restless urban consumer through a valorized milréis. The situation had calmed down once Bernardes's successor, the former governor of São Paulo, Washington Luís, took office in 1926. He first shaped his policy to favor the exporters from his state. As governor he had been one of the architects of São Paulo's Permanent Defense of Coffee and had helped the state-controlled Banco do Estado de São Paulo become the largest mortgage bank in the country. At the same time, however, he embraced the European trend back to the gold standard. The financial reform Washington Luís introduced at the end of 1926 reflected the somewhat contradictory goals he was pursuing. He wanted to expand credit and maintain a low exchange rate for fazendeiros, yet at the same time resume the gold standard. The mechanism for achieving these aims was the Caixa de Estabilização (CE), an institution similar to the Caixa de Conversão. The CE received the monopoly of issue of goldbacked currency as the Banco do Brasil lost the right of issue. The exchange rate the CE defended was six pence, a historic departure from the twentyseven pence goal of previous adminstrations and 20 percent below the average rate of 1926. To attain this, it drove down the milréis by expanding the money supply by almost one-third. Banks responded by stepping up loans and discounts by more than half; exports and industry boomed because of more generous credit and the protection of the devalued

50 The Financial System currency; and foreign investors rushed in to purchase Brazilian companies, as the tumbling milréis lowered their prices in terms of foreign currency.84 The success of Washington Luís's financial program was based on a balance of payments surplus, which could be used to back the expansion of the money supply. When export earnings slumped in 1929 and then foreign capital dried up after New York's stock market crash, the vulnerability of Brazil's financial reform became manifest. Revealingly, Washington Luís's first response to the crisis was to protect the milréis rather than planters. To prevent a run on the CE and a flow abroad of Brazilian gold, the Banco do Brasil began to purchase CE notes with unbacked currency and remove them from circulation. This naturally reduced the lending capacity of the country's largest bank at precisely the moment that borrowers were clamoring for credit. When a commission of Paulista merchants and planters recommended an emergency issue of 400,000 contos to tide over agriculture, Washington Luís refused because the measure would undercut the milréis. Only at the end of the year, in the wake of the hotly disputed presidential campaign, did he allow the Banco do Brasil to disburse 160,000 contos for agriculture and 100,000 contos for other banks. The bank also lent the State of São Paulo 16,856 contos, a far cry from the 100,000 contos it had promised earlier. The monetary base fell 16 percent between 1928 and 1930, the GNP declined, and the exchange rate fell. The exchange fell below the officially fixed standard in 1930 and about 30 million pounds deposited in the Caixa de Estabilização and the Banco do Brasil was withdrawn from Brazil. But Washington Luís remained steadfastly true to his deflationary policy and the gold standard.85 The State in Banking: A Reckoning Clearly, state interventions were motivated more by concern over the foreign credit rating, the value of exchange, and commercial credit than by the desire for state control of capital markets. Because the aim of state policy was more to straighten out public finances than to stimulate banks, it is perhaps on that basis that the policy should be judged. The professed goal of nearly all of the administrations—the return to the gold standard—was not achieved. Indeed, the value of the milréis, which was twenty-six pence in 1889, had tumbled dramatically to five pence by the end of the Republic. The federal government was able to maintain its credit rating, despite the moratoriums in 1898, 1914, and 1932. In fact, the foreign debt grew exponentially during the Republic. In 1890 it stood at 31.1 million pounds. Between 1890 and 1931, the country contracted an additional 343.3 million pounds. In that period it paid 365.4 million pounds in principal and interest on loans and, due to compounded interest, the foreign debt was at 267.2 million pounds in 1931.86

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51

The foreign debt came to overshadow the internal one. In 1889 the domestically held debt had represented 58 percent of the consolidated federal debt. By 1927, although domestic borrowing had ballooned eightfold over the 1889 total, it only represented 22 percent of the federal debt.87 Despite the growth of the domestic banking system and the constant struggle to finance foreign loans, state administrators became more dependent on foreign financiers. To give a notion of the proportions of the foreign obligations, whereas real international trade grew 126 percent during the First Republic and total production 138 percent, the foreign debt expanded 861 percent. The servicing of foreign loans exceeded the commercial surplus in seventeen of the Republic's forty years.88 To cover the costs, they had mortgaged virtually all government revenues: customs duties, railroad and port earnings, and the Federal District's income. Concluded one critic, "We have nothing left to mortgage."89 The foreign debt became self-perpetuating as it consumed over one-quarter of the federal budget and produced deficits in thirty-two of forty-one years. New loans were often contracted to pay off old ones or to free the Treasury from other foreign obligations, such as railroad profit guarantees. The state borrowed to right its finances and retain a good credit rating, yet those very loans weakened its financial position. The federal government, for instance, borrowed abroad heavily in the late 1920s to support its return to the gold standard. Currency stability offered by the gold standard was to attract further foreign investment and ease repayment of the debt. In fact, it tied Brazil more directly to the cycles of the world economy, as the money supply became dependent on the balance of payments. When the Depression struck, the experiment unraveled and the country's finances fell into disarray. Still, one must recognize that the state's financial policies and the growth of the economy stimulated the expansion of the national banking system. Between 1912, when national data were first collected, and 1930, mortgage issues grew 30 percent faster than the real GDP; loans and deposits grew nearly twice as fast. In absolute terms, real note discounts jumped 326 percent between 1912 and 1930, and real short-term loans climbed 537 percent.90 At the same time, native financial institutions enlarged their share of total banking. The Banco do Brasil's privileged position, its rediscounts, and legislation striking at foreign banks gave national lenders an advantage. Their percentage of total loans and discounts grew from 54 percent in 1913 to 72 percent in 1929. In the country's dynamic center, São Paulo, national banks' percentage of total operations rose from 22 percent in 1913 to 73 percent in 1928. Brazilian banks had always dominated the mortgage market; between 1922 and 1929 they issued 92 percent of all mortgages. In addition, the Caixa de Conversão, the Caixa de Estabilização, the Banco do Brasil, and federal legislation stripped European banks of their commanding position in the exchange market.91

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The Financial System

Not only was the system larger and more nationally controlled, it was healthier. This was reflected in the percentage of deposits kept on hand, which steadily declined from 42 percent in 1912 to 27 percent in 1927. Because of the state's participation and the larger resources of the Banco do Brasil, the 1929 crisis did not have the serious repercussions of the crises of 1864, 1875, and 1900. 92 On the other hand, because the development of financial institutions was more a side effect of state financial policy than its primary aim, the banking system remained lamentably small, concentrated, and conservative. Economic historian Rondo Cameron has established a rough criterion by which to judge the size of a banking system. Using the number of financial establishments (headquarters and branches) per ten thousand persons in the population for an index, he maintains that below .50 is a low bank density and below .10 is very low. Rio de Janeiro, which dominated national finances, had a density rating in 1912 of 15. The state of Minas Gerais, one of the richest in Brazil, had a rating in 1921 of only .10. As late as 1930, the national index stood at .15. In comparison, Great Britain, when it began its industrialization surge more than one hundred years earlier, had a density of .77, and the United States in 1920 had one of 2.94. 93 Another indication of the Brazilian financial market's paucity is that in 1921 per capita bank deposits were about $17.50. In 1928 the deposits were not much higher—$20.00. Average deposits in the United States stood at $152.10 in 1921 and $235.80 in 1928. The difference in wealth between the two countries accounted for only half of the discrepancy in savings.94 Banking was regionally concentrated, and the absence of banks throughout most of the country was even greater than the above aggregate statistics indicate. Between 1921 and 1936 the Federal District and São Paulo were responsible for almost two-thirds of all deposits and mortgages, substantially higher than their share of national production. The federal government concentrated spending in the capital. The Banco do Brasil, despite mounting over eighty branches throughout the country by the end of the Republic, also centralized activities. Indeed, it often siphoned funds from regional branches to Rio.95 Of course, the states restricted the activities of their public banks to their own boundaries. Consequently, the richest enjoyed the greatest public financial assistance. Banks continued to be conservative, despite advances made in rediscounts, check cashing, and mortgages. Brazil continued to offer far fewer mortgages than did neighboring Argentina.96 The great majority of loans were for ninety days or less. As the next chapter demonstrates, even the largest mortgage bank in the country, the publicly owned Banco do Estado de São Paulo, principally offered credit for commercial purposes, not to encourage production. Capital was too scarce for banks to immobilize it in long-term investments. The federal government, presumably dominated by a planter

The Financial System

53

bourgeoisie, never established a public mortgage institution, though there were unsuccessful efforts in 1898, 1906, and 1924. The state provided virtually no developmental loans nor did it encourage others to extend longterm, low-interest loans for industry. Capital for increased productive capacity generally came from reinvested profits, partnerships, or foreign investment. In ill repute after the Encilhamento, the stock market failed to mobilize large amounts of capital for the private sector. Brazilian banking essentially mirrored the laissez faire attitude of the ruling oligarchy. It maintained the regional imbalance, favored commerce, and redistributed money to the more affluent, though foreigners' hold on the market was undercut. Brazilian banks had always favored the more prosperous members of society. Personal relationships with bankers and collateral were usually necessary to secure a loan. State banks extended this tradition. The savings of the working and middle classes, deposited in federal caixas econômicas, were used by the Treasury to finance its debts. Treasury spending also benefited the bourgeoisie far more than the working class. The Banco do Brasil reinforced the transfer of resources to the elite by extending predominantly large loans, obviously not destined for the masses, and requiring the cosignature of well-known merchants on discounted notes. Fraud by the bank's officials also concentrated its funds in the hands of a few. An official commission found gross malfeasance of office between 1923 and 1930, which in the last three years of Washington Luís's term alone cost the bank three hundred thousand contos. This equaled about half the deposits in all of the caixas econômicas in the country.97 Part of the reason for the banking system's conservatism was the contradictory pressures faced by the Banco do Brasil. After its reorganization in 1905, the Banco do Brasil endeavored to fulfill numerous and rather conflicting roles. As a commercial bank it sought to aid commerce, industry, and agriculture concurrent with turning a healthy profit. In this capacity it occasionally functioned procyclically. In attempting to become or actually operate as a central bank, it sought to control the means of payment: through the manipulation and rediscount rates, through issues of currency (19231926), and through direct loans. The Banco do Brasil wanted to expand the money supply during economic downturns; however, it was also custodian of the exchange rate. As such, it had to raise interest rates and hence slow down currency during emergencies so that internal inflation would not drive down the milréis. Finally, as the Treasury's banker, the Banco do Brasil had to sustain high liquidity as well as devote substantial resources to the federal government. This limited its capacity to carry out its other duties. The federal government simply did not provide the Banco do Brasil with sufficient means to accomplish the variety of tasks it had been assigned (table 6).

Table 6. The Banco do Brasil in the National Banking System

Year

Capital (contos)

1906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930

70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000

Dividends on Capital (%)

3.5 5.0 8.5 9.0 9.0 9.5 10.0 10.0 9.0 8.0 8.0 8.0 8.0 10.0 10.0 15.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0 20.0

Reserves (1930=100)

-

1.5

-

5.1 13.0 19.2 43.3 50.5 57.2 63.0 68.7 72.6 76.0 100.0

Loans Deposits (1930=100) (1930=100)

1.4 4.2 7.1 5.3 6.7 8.5 10.6 10.6 8.5 7.1 8.3 14.9 19.8 17.0 19.8 51.7 72.9 90.6 80.0 77.3 74.9 79.0 82.6 85.9 100.0

1.3 6.0 8.3 11.2 12.3 15.4 12.7 11.4 8.5 6.0 9.8 9.8 14.0 12.6 18.2 59.2 75.7 94.2 65.9 66.9 72.8 79.1 99.2 108.0 100.0

Total Total Exchange Rate Loans Deposits (milréis/dollar)

-

18.0 29.2 28.6 27.2 28.3 28.1 22.5 19.4 20.0 23.7

12.5 26.1 33.6 30.8 27.7 24.1 22.7 22.0 18.4 11.0 10.8 9.4 10.0 11.3 11.1 28.0 28.2 24.3 28.1 22.5 23.8 28.0 26.1 23.1 24.3

3.1 3.3 3.3 3.3 3.1 3.1 3.1 3.1 3.4 4.0 4.1 3.9 4.0 3.8 4.8 7.8 7.7 9.8 9.2 8.3 7.0 8.5 8.4 8.5 9.2

Sources: Banco do Brasil, Relatório, 1924: Anexo n.p.; 1931: Anexo n.p.; IBGE, 1908-1912: 213; 19391940: 1355; Ministério da Fazenda, Relatório, 1930, p. 40; Peláez and Suzigan, História monetária, pp. 449452. Note: ~ means no information.

The Financial System 55 The Treasury failed to bestow the funds for a truly dynamic central bank in part because it did not have the resources. Its poverty was particularly acute during recessions, when its funds were most needed; as much as 65 percent of its revenues derived from import duties, which generally declined as the economy came into trouble. The faith of politicians in the doctrines of hard currency and laissez faire and the menacing foreign debt further inhibited Congress from granting the bank sufficient resources or more legislated powers. In fact, it was the government's shortage of revenue, its ideological proclivities, and its need to direct the nation's financial and exchange markets that led it to its arrangement with the Banco do Brasil in the first place. By employing a semiprivate commercial institution such as the Banco do Brasil rather than establishing a public bank, the state was able to capture deposits, benefit from commercial profits, and not arouse political opposition to state economic interference. Probably the most important advantage of the relationship for the Treasury was the large quantity of deposits to which it gained access. The Banco do Brasil's influence over the nationalfinancialmarket came more from the weight of its deposits than from the smaller state privileges it received. The federal government could tap over one-third of the country's bank savings (the Banco do Brasil and the caixas econômicas) without resorting to unpopular means such as taxes, printing money, or high interest rates. (When one includes the deposits housed in the state-owned banks, public officials controlled about one-half of the nation's savings deposits.)98 As the government's banking agent, the Banco do Brasil lent a considerable portion of its deposits to the Treasury. In 1925, for example, one-quarter of the bank's loans were to the Treasury. The bank also served as a source of federal loans to individual states and, hence, as a source of centralization; in 1926 seven states together owed 40,000 contos (about $5,300,000)." In addition, the deposits provided the bank with a potent tool with which to implement the monetary policy Congress had assigned it. Given the lack of legislative powers such as that establishing reserve requirements, the added market force supplied by the public's deposits was essential. State capitalism was profitable for the Treasury. Simply in dividend payments, it received about 80,000 contos (about $9,300,000) between 1923 and 1930; these funds went to retiring Treasury notes. Moreover, the Banco do Brasil was able to profit enough to retire about 180,000 contos (about $21 million) of the Treasury notes in 1923 and 1924 alone. It also set considerable profit in reserve, as its statutes forbade more than a 20 percent dividend. The reserve guaranteed that the Treasury would profit disproportionately to its share of stocks. By 1930 the reserves stood at 208,000 contos (about $22 million), part of which were utilized in an amortization fund to purchase gold. In turn, the gold was used to redeem unbacked Treasury notes.100 Thus the bank not only lent to the government, it paid off part of the

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The Financial System

government's debt. The relationship with the Banco do Brasil, then, proved a felicitous solution for a government controlled by an economically liberal rural oligarchy, which suffered from financial difficulties. It is important to emphasize that federal politicians were not guided simply by economic theory. Rather, the interplay between the demands of the rural, exportoriented oligarchy and European investors and urban consumers largely shaped policy. Conclusion By 1930 the regime that had ushered in the Republic by awarding private banks unprecedented powers and concessions had reasserted strong state control over national financial markets. It also reined in foreign banks. Ironically, state actions generally sought to strengthen the laws of the market rather than reshape them. Foreign banking activity was constrained principally to bolster the currency and attract foreign capital. The state entered the financial market to protect the Treasury's integrity, not to stimulate development. Unlike in Germany, and to a lesser degree the United States and France, the Brazilian banking community was not composed of dynamic entrepreneurs striving to forge industrialization. Brazil's bankers were commercial capitalists who did not seek qualitative changes in the status quo; neither did politicians and bureaucrats. They worked to buttress the export system. The financial policy of the First Republic was predicated on the supremacy of the international sector. Even when efforts were made to weaken foreign ties, such as from 1889 to 1894 and 1906 to 1914, there was a continuing faith that foreign capital would stimulate development. Indeed, it was only the flood of European investment in the latter period that allowed the state to ease credit and undertake large public works projects. Nonetheless, coffee planters did not independently direct state financial policy. They failed to secure a federal mortgage bank. They also frequently confronted monetary and exchange policies hostile to their interests—even when fellow planters occupied the presidential palace. But neither did a semiautonomous bureaucratic caste reign. The apparent independence of state administrators simply reflected efforts to reconcile the contradictory interests that the export economy had bred. Foreign creditors and investors, the Ministry of Finance, importers, and urban consumers favored a strong currency and stable prices. They wanted to facilitate the international flow of capital in the form of dividend repatriation and debt repayment as well as the importation of goods. They opposed the expansionist policies advocated by agriculturalists, industrialists, retail merchants, and some bankers. Ironically, the men in both camps sought to strengthen private enterprise, yet

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both brought increased state interventions. Indeed, efforts to protect the Treasury and the currency were responsible for most of the interventions in other sectors of the economy. The tensions in the export economy were manifested perhaps most eloquently in the campaign to defend Brazil's coffee.

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3. The Defense of Coffee

"Brazil is coffee" went a popular saying of the nineteenth and early twentieth centuries. Coffee provided over half of all exports. With its unassailable position in the world market, Brazilian coffee fueled the economy and helped sustain the state. Its importance to the economy and the state made it one of the principal issues in the political struggles of the First Republic. As J. W. F. Rowe, a keen analyst of world commodity markets, noted in 1932, "Brazilian coffee has been subjected to artificial control of a more thorough, prolonged and deliberate character than any raw material of major importance."1 The issue at stake and the solutions reached cast a bright light on the liberal state, illuminating the nature of the conflicts and the limits to action. Coffee greatly shaped the nature of Brazil's social structure and the balance of political power. World demand for coffee expanded at precisely the same time that Brazilian production boomed, and steamship and railroad development dropped transport charges dramatically. Simultaneously, the growing prosperity of the European and North American working classes, coupled with the population spurt in the United States, expanded the demand for coffee more than twenty-five times in the nineteenth century and doubled it in the first thirty years of this century. Brazil was uniquely prepared to meet the new demand and indeed to stimulate it by producing relatively inexpensive coffee because of its vast fertile lands, its preexisting supply of slave labor, and relatively easy transport. No competing country could match its natural productivity, so technological gains were unnecessary. In addition to having the factors of production already available, the country enjoyed political peace, so that production and transportation were not hindered by bandit raids, as they were in many neighboring Spanish American countries. The nature of coffee production in Brazil provided economies of scale because of the cost of hulling machinery, rail connections, and slaves. Thus not only was Brazil's productivity the highest of all coffee producers, so was its concentration of land. Because coffee, unlike many other of Latin

60 The Defense of Coffee America's export crops, was almost always produced and in good part financed by native fazendeiros, the Brazilian coffee bourgeoisie was extremely powerful.2 The State's Historical Role Coffee flourished in the nineteenth century without a great deal of direct state assistance. The only public contribution to the creation of agricultural credit was the authorization of mortgage banks to float mortgage notes in the bond market in 1873 and a three-year monopoly of the issue of gold mortgage notes abroad to another bank nine years later. Aside from that, until 1888 the federal government offered no subsidies in the form of loans, tax exemptions, or profit guarantees. Only the province of São Paulo acted differently, when it guaranteed a 7 percent yearly profit for the Banco de Crédito Real de São Paulo in 1882. In fact, the imperial government hampered the rural credit market by absorbing a large part of available liquid capital with its Treasury bonds and by failing to regularize land titles and mortgage registries. As a result, even though the Banco do Brasil, together with other mortgage banks, provided a substantial part of the outstanding coffee loans, there was a constant clamor for additional credit. The credit that did exist benefited primarily rich and well-connected planters.3 The imperial government did provide vital indirect aid to coffee fazendeiros through profit guarantees on railroads and ports, low tariffs to prevent retribution by foreign countries, and social peace in the slave order. This seems rather little in light of the Empire's reputation as a centralized, interventionist, planter-dominated regime. Despite the inadequacies of the system, though, coffee exports managed to multiply seventeen times between the first decade of independence and the last of the Empire. The unplanned fashion in which coffee cultivation spread in the nineteenth century, however, made it particularly vulnerable to foreign manipulation and to crises in the world economy. Planters frequently found themselves short of liquid capital; with the lack of long-term credit and an adequate warrantage system, they had to sell their crops soon after the harvest. Because most coffee was harvested within a four-month period, the market became flooded and the fazendeiros' returns fell. The shortage of credit and warehouse facilities meant that the comissário (factor) could not hold coffee off the market for long to drive up its price. Such a rise would have profited the planter, as the factor sold on consignment. The periodic inundations of coffee also drove up the gold value of the milréis because gold flowed into the country to purchase the crop. As a consequence, the planter received fewer milréis per pound sterling of coffee sold than he would have had the currency's quotation remained lower. Later in the year, when the fazendeiro made his purchases, the value of the milréis

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61

fell because gold was no longer entering the country but rather leaving in the form of payment for imports. His milréis costs rose accordingly. Control over coffee prices was not in Brazilian hands, but rather in those of the dozen European and North American exporters who had access to superior capital and credit, information on foreign markets, and stocks abroad and used these advantages to impose an oligopsony. The actions that the state would undertake during the First Republic would ameliorate these conditions and bring the coffee economy increasingly under national control. Coffee during the Republic The abolition of slavery in 1888 set off a series of state measures to compensate agriculture and ease the transition to free labor. As already shown, the 1888 loan to the Banco do Brasil and the 1889 agricultural loans to various banks helped spark the Encilhamento. Rui Barbosa quickly canceled Ouro Preto's agricultural policy, replacing it with one that was equally ineffective. Barbosa's banks of issue received authorization to issue mortgage bonds and extend mortgages, but it is doubtful that he expected much success.4 The major banks refused to issue any appreciable number of long-term agricultural loans, despite legislation in 1890 regularizing land titles, when the stock market was so much more inviting. As someone at the Banco Hypotecário wrote Floriano in 1893, "At present, as the government well knows, agriculture . . . has no banking establishment in this capital [Rio]."5 The 1893 aid-to-industry bond issue, intended for agriculture as well as industry, hardly benefited the countryside.6 But whereas planters in Rio's declining hinterland were strapped for credit, the prosperous fazendeiros of São Paulo thrived. Mortgage bonds there were widely subscribed. According to one informed estimate, banks provided seventy-five thousand contos in mortgages in São Paulo and individuals provided a like amount. One in four landowners had a mortgage.7 The coffee boom of the Republic's first years was partly a by-product of state policy, though principally a result of exogenous factors. The world coffee market was particularly favorable at the time that Brazil was undergoing its tumultuous transformations. Beginning in 1887 coffee prices had risen impressively in pounds sterling and even more so in milréis. Planters' expenses rose at a much slower rate than the milréis depreciated because few inputs were imported, transportation costs were not yet tied to the price of gold, and labor costs did not closely follow the milréis or the urban inflation rate, as over half of remuneration came in nonmonetary forms such as the use of housing and land. The entry of 167,636 publicly subsidized immigrants into São Paulo between 1885 and 1889 and another

62 The Defense of Coffee 315,555 during the next five years helped reduce labor expenses.8 High coffee prices and relatively low costs allowed fazendeiros to accumulate large amounts of capital and encouraged them to open new land to cultivation. The rapid growth of the money supply and the banking network between 1889 and 1892 stimulated short-term credit, which found its way to the more prosperous coffee areas. There followed the most dramatic spurt of new coffee cultivation that the world had yet witnessed. Between 1894 and 1900 the number of coffee trees in production in the Santos zone more than doubled. Coffee's prosperity carried within it, quite literally, the seeds of its own destruction. This situation would lead to serious problems in the second half of the 1890s and eventually to the Treaty of Taubaté and valorization in 1906. The First Coffee Crisis As coffee's international price and the federal government's revenues dwindled by about one-third between 1895 and 1898, public alarm grew. The debate focused on two principal causes for the decline. Planters and factors directed their fire at British, North American, and German exporters, who controlled over 90 percent of the crop's shipments. With their considerable market power, these exporters were in the position to manipulate prices. When several exporting houses began sending their own buyers into the interior to circumvent the factor, their influence was enhanced further. Critics of the exporter clique pointed to the much more rapid fall of prices in Brazil than in New York as evidence of underhanded practices.9 More orthodox members of the political andfinancialcommunities, such as Joaquim Murtinho and the leading Paulista politicians—Prudente, Campos Sales, Rodrigues Alves, and Bernardino de Campos—instead blamed overproduction. According to this view, the dip in prices stemmed from theflurryof new planting in the early part of the decade. This had been stimulated not by healthy economic conditions, but, artificially, by the flood of paper currency. Interestingly, the country's largest agricultural organization, the Sociedade Nacional de Agricultura, also took this position.10 The true cause lay somewhere between these two explanations. Foreign exporters did control the crops and paid the lowest price possible. But coffee's depreciation derived more from the disastrous worldwide depression in 1893 than from underhanded manipulations. The supposed disparity between Rio and New York quotations does not bear close scrutiny: when Rio prices are corrected for the milréis's devaluation, thefluctuationsof the two price series become virtually identical. Coffee prices fell in New York as well, and the most notorious of North American houses, the Arbuckle Company, was not feasting on low-priced coffee. Involved in a titanic

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63

struggle with the Havemeyer sugar trust over the domination of sugar refining and coffee roasting, Arbuckle was selling coffee at unprofitably low prices.11 Overproduction was the chief cause of the coffee crisis. When the depression ended in 1897, the coffee market did not improve, because trees planted in the early 1890s came to maturity. Supply continued to outstrip demand, though not merely due to the early Republic's banking policy. The high international quotation of coffee in the early 1890s and the availability of relatively inexpensive fertile land in western São Paulo opened by the expansion of rail lines there in the 1880s and 1890s encouraged greater harvests. Planters had simply responded to market stimuli. Indeed, it was a natural reaction by the more prosperous planters that probably most undercut their fellow producers. The nature of Brazilian coffee production dictated that fazendeiros would respond to lower prices by cutting production costs through productivity gains. Unlike fellow coffee planters in Colombia or Costa Rica or sugar planters in Cuba or Jamaica, Brazilians responded by opening new lands rather than by investing in more sophisticated processing machinery. Production costs on new land were about one-third less than those on old land because of greater fertility.12 The nature of the labor system also dictated that opening new lands made economic sense. The immigrant workers (colonos) received the majority of their remuneration in the nonmonetary form of housing and a private plot. In addition, when new land was cleared, the worker received use of the cleared land for six years. Laborers were also paid for harvesting according to the amount of beans picked. These features made new, more productive land more attractive to them than were older areas. Planters in declining regions with little virgin land had to compensate by increasing wages precisely when their debts were rising and their productivity falling. Thus coffee's depression had a substantially different impact on the planters of the stagnating Paraíba Valley than on those of vigorous western São Paulo and, to a lesser degree, eastern Minas.13 Despite the seriously compromised position of many planters, they never questioned the basic soundness of the liberal free trade system. They continued to maintain that the system worked, that one should allow supply and demand to determine prices without the state's intervention. But special conditions now required that some state aid be given to counteract the distortions in the system created by speculators and monopolists. Given heir position as exporters, fazendeiros could hardly have reacted much differently; the argument that Brazil's comparative advantage lay in coffee and hence that it should receive special government consideration underlay planter thinking. Were they to question free trade fundamentally while cultivating a luxury crop with few possibilities for expanded consumption within the country, they would be undercutting their own internal political

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The Defense of Coffee

position as well as making themselves more vulnerable to tariff retaliation on the part of foreign states. The plans that echoed through the halls of Congress can be divided into three general categories: those intended to diminish the market control of foreign exporters; those that sought to reduce production or stimulate demand; and efforts to reduce production costs. The most radical proposal in the first group called for a national monopoly of exports through either a state or a private company that would wrest control of the market away from the European and North American houses. Although a number of prominent people endorsed this scheme, it clashed too sharply with liberal tradition and was rejected for the time being.14 A milder solution would have had the state establish or subsidize roasting factories in Europe that would purchase their beans directly from Brazil. Intermediaries would thereby be avoided. Brazilian factors attempted this in 1893 and 1899 but were unable to enter the market.15 Th agricultural community saw state and rural credit as another means of relaxing the commercial grip of British, German, and North American traders. In 1897 Congress authorized banks in all of the states and the Federal District to issue mortgage bonds up to a total of eighty thousand contos for the country; however, the bond market was too weak and agriculture's plight too risky for the legislation to be realized. The financier Mayrink proposed a project the same year for a Treasury issue of one hundred thousand contos for agricultural aid, but it was also defeated because, as the congressional committee rejecting it observed, "the direct intervention of the state in aiding one or another sector is, as a rule, full of dangers." Instead, they argued, "everything should converge for the salvation of the Treasury."16 In 1899 the federal government did establish a mortgage bank, but the 1900 banking crisis snuffed out the nascent institution. Nine years later Afonso Pena would seek to form a state mortgage bank but would also fail.17 The states endeavored to provide rural credit. As one would expect, São Paulo was the most active. The Banco de Crédito Rural de São Paulo, which enjoyed a state profit guarantee, was reorganized in 1899 as a mortgage bank exclusively. It ended its commercial operations and doubled its capital. Nonetheless, as the Centro do Comércio do Rio de Janeiro lamented, "coffee agriculture and commerce have never found themselves in so anguishing a situation as now oppresses them . . . [factors] are their only bankers in a country in which the indispensable institutions of agricultural credit have disappeared."18 São Paulo's legislature responded in 1902 by authorizing a profit guarantee for another mortgage bank. Only six years later did the prospects of Paulista agriculture appear sufficiently inviting that French investors took up the offer. In Minas Gerais the Banco de Crédito Real de Minas Gerais, which was partially state-owned, received 3,000

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65

contos from the central government in 1889 and 7,000 contos from the state in the early 1890s. In 1897 the state government guaranteed the capital and interest of the bank's mortgage notes, which reached only 1,362 contos by 1902.19 Another project to restructure the coffee economy sought to create producer cooperatives to provide mutual financing, warehouse facilities, and marketing, and thereby avoid intermediaries. Fiscal conservatism aborted the federal effort, but some states encouraged cooperatives. Minas created a special institution to sell cooperative coffee. It was fairly successful; at its height, in 1913, it accounted for about 10 percent of the state's exports. But cooperatives never made large inroads in a country dominated by the latifundia and strong familial networks.20 The second group of proposals dealt with reducing coffee production or encouraging greater consumption abroad. The most direct approach was that of São Paulo, which levied a prohibitively high tax on new coffee lands beginning in 1903. The measure stayed in force until 1912 and was generally effective, though it was often ignored in the later years.21 Rio State was the most aggressive proponent of a second means of lowering coffee production: agricultural diversification. Once the proud leader of the Paraíba Valley, Rio's lands were exhausted and its coffee productivity had declined sharply. In 1903 the governor, Nilo Peçanha, decided that the state's future lay in concentrating on the inviting market of the neighboring Federal District by producing such crops as beans, corn, rice, and dairy products. To carry out the plan, state government reduced taxes on exports into neighboring states from 11 percent to 8 percent, increased (illegally) import taxes from other states to protect its own markets, and reduced rail transportation costs. The state was too poor to provide much financial assistance. Nonetheless, the initiative proved successful, as Rio's produce made inroads in the Federal District's markets.22 São Paulo and Minas also diversified. Cotton was planted in place of the prohibited coffee in São Paulo, and by 1920 Brazil was the fifth-largest cotton producer in the world. The value of the cotton crop reached two-thirds of coffee's income. Minas expanded its stock raising and agricultural pursuits aimed at internal markets to such a degree that by 1903 coffee accounted for less than half of the products shipped out of the state.23 Still, abandoning coffee was not a popular prospect with the more successful coffee producers. A propaganda campaign in Europe seemed to many to be a solution to the slack demand. Believing that Europeans consumed little coffee in comparison to North Americans because of their lack of familiarity with it, some deputies proposed an educational plan.24 Many planters argued that reducing the cost of production would greatly

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The Defense of Coffee

relieve their plight. One frequently sounded call was to reduce freight rates on railroads. As chapter 4 demonstrates, the federal government did lower rates on its lines. Nonetheless, as planters moved farther into the interior in search of virgin lands, transportation costs inevitably rose. Lower export taxes also meant greater returns for planters. Minas and São Paulo joined Rio in decreasing the rates on coffee exports. Minas lowered its taxes from 11 percent in 1899 to 8 percent by 1904, as did São Paulo. The states increased taxes on other sectors to compensate for the loss in revenue.25 To reduce labor costs and make workers more available, agricultural colonies were promoted. By using state land to establish small-scale farming, São Paulo attempted to provide a dependable work force for harvests, but the program was never very successful.26 All of the proposals to reduce production, stimulate demand, and diminish cost had one important aspect in common—they called for the state to play a larger role in the coffee economy. As Deputy Francisco Malta expounded, "The school of laissez faire or the dogma of free enterprise is no longer viable."27 Unfortunately, the three Paulista presidents who governed between 1894 and 1906 disagreed. Despite their close ties to coffee and the personal losses they suffered from the crisis, they pursued policies characterized by one deputy as "Spencerian."28 Prudente, Campos Sales, and Rodrigues Alves not only did not aid coffee producers, but to an extent hurt them. As already discussed, the fiscal woes engendered by coffee's decline prompted an extremely conservative monetary policy and the Funding Loan. Bernardino de Campos, Joaquim Murtinho, and Leopoldo Bulhões, the guiding forces behind the conservative economic policy, argued that the country was too poor and its credit too weak to permit state action in agriculure. At base, however, the issue was more ideological than financial. In fact, after 1900 Brazil had the funds necessary for assistance to coffee. A rise in coffee volume and the tripling of rubber exports between 1897 and 1905, coupled with the containment of imports, led to the greatest trade surplus the country had known. The influx of foreign investment translated into a positive balance of payments after 1900. As a consequence, real federal spending also rose. Indeed, Rodrigues Alves responded to therisingprosperity by renovating the Federal District and its port, spending record amounts on public works and partially borrowing abroad tofinancethem. But although the Paulista president and his Paulista appointee to the prefecture of Rio, Perreira Passos, conducted extensive construction in Rio, Rodrigues Alves refused to underwrite a European loan to finance the valorization of coffee.29 These Paulistas believed in the Manchesterian school of economics. The market was responsible for an efficient distribution of resources; any tampering by the state distorted the economy and led to waste.

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The most important steps that the Paulista presidents took concerning coffee were virtually to end federal subsidies to immigrants after 1896 and to raise the milréis's exchange rate. The former helped provoke a sharp drop in immigration and transferred the cost of the reduced program to São Paulo; the latter meant that where a sack of coffee worth 1.74 pounds in 1897 brought 50 milréis, by 1905, when coffee returned to a relatively healthy 1.98 pounds, 14 percent above the 1897 figure, its value had fallen over 40 percent in milréis. It is true that the general price level also fell during those years; however, the planter's debts, which had been contracted previously under the cheaper milréis, now had to be repaid with the more valuable one. As deflation aids the creditor proportionately more than the debtor, the valorization of the milréis probably served to redistribute money from the agricultural sector to the financial and commercial areas. Moreover, many other expenditures in the interior, such as labor costs, were not closely tied to the exchange rate; hence, the plantation labor bill did not decline in porportion to the milréis's appreciation.30 The Treaty of Taubaté The prospects of the largest crop in Brazil's history in 1906 catalyzed the planters of the major producing states, São Paulo, Minas, and Rio, into meeting in Taubaté, São Paulo, to seek a solution to the impending disaster. Well before the harvest there were signs that this crop would have an unprecedented yield. By the time all of the berries had been picked, 20,409,000 sacks had been harvested. This was over 50 percent above the previous record. With the preexisting world glut, immediate and drastic action had to be taken. The governors of the three states met in June of 1906 and signed the nowfamous Treaty of Taubaté. It called for a fifteen million-pound loan with a federal guarantee to be used to purchase coffee and maintain a price well above the 1897-1905 international average of thirty-eight francs. To ensure this price, they wanted all states to establish a prohibitive tax on new trees, such as São Paulo had already levied. In addition, the treaty established a public coffee exchange so that exporters would no longer control the grading of coffee. A propaganda agency would attempt to stimulate foreign consumption. The most controversial feature of the treaty called for a three franc per sack surcharge on coffee exports and the Caixa de Conversão to stabilize the exchange rate. Both of the latter elements were designed principally to facilitate the repayment of the contemplated loan.31 The proposal was an ad hoc response to a particularly distressing situation. It revealed much about the nature of the world coffee economy and Brazil's real and perceived position in it First of all, the underlying idea of buying coffee and holding it off the

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market reflected the crop's special nature. Because it is a perennial crop that requires four to five years to mature, production could not simply be cut back and land converted to other uses, as with wheat, for example. Because it does not spoil easily, it could be stored in warehouses for a number of years awaiting price increases. Indeed, some experts believed that beans improved with age. But why would they expect the price to rise again? Would not production continue to mount? Here again, biology enters into the equation. Coffee has a natural tendency to follow a very large crop with a number of smaller crops. In addition, Brazil had far greater climatic variations than other coffee producers, so that the natural variation in productivity would be exacerbated by freezes. Therefore, coffee production could be expected to decline in the short run. World coffee consumption at the same time had risen steadily at the rate of about 2 percent per year. But would not the higher prices foreseen at Taubaté dampen demand? Brazilians viewed coffee as an essential product with a low price elasticity. Unlike most tropical crops, it was a low-cost, everyday drink with many social implications—the coffee break and the coffee shop, for example. Moreover, the caffeine in coffee meant that it was to some extent addictive. But if Brazil held back its crops to hike prices, would not its international competitors increase their production to fill the gap? Brazilians did not think that was a real possibility. Every time a Paulista coffee expert toured the competing countries, he returned convinced that the terrain, small holdings, and shortage of capital and credit would make it impossible for Colombia, Costa Rica, Mexico, Venezuela, Java, or Angola to make an appreciable dent in the market. Brazil produced over two-thirds of the world's coffee. There was little fear of international competition from other producers, so the plan never included an international cartel. As it unfolded, valorization proved to be a provincial organization rather than a national one. It was thus the biological nature of coffee that demanded and permitted the valorization scheme; Brazil's grip on the world market made a single-product price manipulation feasible, and the strong political position of coffee planters made state action a reality. The implementation of the plan proved a good deal more difficult than its drafting. The struggles emerging from the final valorization scheme illustrate the constellation of political power at the beginning of the twentieth century. In 1905 Congress had authorized the president to enter an agreement with the states to prop up coffee prices. Consequently, it was thought that Rodrigues Alves would agree to the Taubaté treaty. The president quickly disabused them of that illusion. He attacked the proposal because of the Caixa de Conversão.32 He also opposed it because he believed, as did the Rothschilds, that the country did not have the financial resources to control world market prices. The scheme was a grave risk.33

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The Rothschilds' opposition to Taubaté should not be interpreted as a conspiracy to prevent Brazil from asserting a strong position in the world market. In fact, they wanted a much more aggressive role for the central government. The British financiers suggested that the central government expropriate some coffee lands and convert them to corn, beans, and potatoes as well as establish a three-year federal monopoly on the purchase, sale, and export of all coffee.34 Valorization had to await Rodrigues Alves's successor, Afonso Pena, for implementation. Pena endorsed the Taubaté agreement, despite opposition from many corners. In addition to those advocating a stronger milréis , regional interest groups attacked the federal assistance to an economic sector effectively limited to three states. The Commercial Association of Bahia, for example, argued that the Federal Treasury should not put its finances in jeopardy simply to protect coffee, particularly as control of the program would not be in federal hands. Even many planters in Minas and Rio opposed the plan, because it called for purchasing only the finer beans, not the lower-quality coffee crop of the two older states. Nonetheless, the Mineiro president and his Fluminense vice-president (Nilo Peçanha, former governor of Rio de Janeiro State) garnered sufficient support to overcome the opposition. Thereupon sugar, tobacco, and rubber producers sought federal aid for price-support schemes in return for their acquiescence on coffee.35 Ultimately, only coffee was to receive much federal help. Numerous public attempts had been made at the end of the Empire and the Republic to finance the sugar industry's modernization through central mills. The first republican administration strove to pierce the vast U.S. sugar market with the 1891 Blaine-Mendonça treaty. But Brazilian sugar could not compete in the international markets with Caribbean cane or European beet producers. By the turn of the century, most Brazilian sugar was consumed within the country. A problem arose when a handful of large refiners in Rio took control of the market and drove down the cost of cane. The planters of Pernambuco, Bahia, and Rio states joined forces in 1906 to raise the price of the raw material and sought federal funds to finance the stocks. Congress refused to supply funding, however. Its reluctance reflected partially a lack of federal resources and less political clout held by the politicians from the three formerly powerful states. Probably more important, however, was the fact that the issue revolved around an internal distribution of wealth, not an international one. No more gold would flow to Brazil if cane prices were higher. It would not help the country's balance of payments, its foreign credit, or its foreign investment prospects; hence, it did not sufficiently interest Congress.36 Rubber was also largely ignored. Brazil in the nineteenth century had enjoyed a virtual monopoly on rubber production. Even after the turn of the century, the country exported over half and sometimes as much as 60

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percent of the world's rubber. World demand and prices rose rapidly, but an uneasiness lurked behind the prosperity. Although in 1906 Brazil's position still seemed unassailable and East Asian production minuscule, many Brazilians realized that millions of rubber trees, planted close together on British and Dutch plantations in the East Indies that employed abundant cheap labor, would soon reach maturity and flood the world market. The predatory natural rubber economy in Brazil, which exploited scarce, relatively expensive workers and relied on natural stands scattered throughout the Amazon, was doomed. The northern states of Amazonas and Pará reacted by joining forces with the federal government to maintain the Brazilian position in the world rubber market. They sought to establish agricultural credit banks, cut export taxes, amass rubber stocks, improve the quality of exports, and reduce railroad and shipping rates. The federal government did establish a rubber superintendency and fund it with eight thousand contos, subsidize shipping on the Amazon, build a railroad, and instruct the Banco do Brasil to lend to rubber producers. But the aid that rubber received was far inferior to that eventually extended to coffee. This failure to come to rubber's aid had little to do with the government's lack of resources. The years between 1910 and 1913 were some of the most prosperous of the First Republic; the milréis was strong, as was foreign investment. Nor did it stem from rubber's position in the world economy. It averaged in the first years of the twentieth century over 25 percent of all Brazilian exports, reaching almost 40 percent in 1910. Rubber received far less assistance than coffee partly because its defenders' political position was far weaker. The sparsely populated northern states had few voters. And the rubber economy was an enclave; it had few multiplier effects on the economy. This made it more difficult to find allies in commerce or industry. Nor did agriculture oriented to the internal market lend support. More important, only a massive infusion of capital and labor could revolutionize Brazilian rubber production techniques sufficiently to make it competitive with the English and the Dutch. Unlike the case of coffee, the problem was not a commercial one, but rather one of production. The competitors were not planters in other underdeveloped countries, but, rather, wealthy European capitalists protected by their own governments. The Amazon's economy was a victim of European colonialism in Asia.37 Coffee fazendeiros enjoyed a stronger position both politically within the nation and economically within the world economy than did sugar or rubber producers. Because coffee in the early twentieth century was directly responsible for between 10 percent and 15 percent of total Brazilian production and over half of all exports, and because it had vital consumer and fiscal linkages with the prosperous and politically dominant center and south of country, it had a firmer hold on the economy. Even so, the federal government was not simply at the planters' beck and call, as has often been

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asserted. Paulistas were eventually able to enlist federal support because they had the financial power and political will to initiate valorization virtually single-handedly. Once they had established its viability, federal aid was forthcoming. The federal government established the Caixa de Conversão and promised funds to São Paulo for valorization. But the disorganization of the world financial market in the wake of the recession of 1907 prevented federal financial support initially. Expecting eventual federal aid, São Paulo began valorization in the middle of 1906 with a one million pound one-year loan from the German Disconto Gesellschaft. Finding other European bankers reluctant to lend because of the Rothschilds' opposition to valorization, the Paulistas turned to the only other group with large capital and an interest in the coffee market: coffee exporters and importers. Ironically, those that the planters opposed for driving down prices were now called on to help in raising prices.38 Herman Sielcken, chief partner in a U.S. importing firm, organized a consortium of major North American, German, and French exporters and importers who promised to purchase over two million sacks of coffee at an average price of seven cents a pound. Sielcken thereby made himself "the last coffee king" by achieving an "absolute dictatorship of the green coffee business."39 São Paulo paid a high price for this service. The state had to pay 6 percent interest on the money advanced, allow all purchases to be made by the German exporting house of Theodore Wille, and cede control over the stocks that the lenders held in warehouses in the United States and Europe as collateral on the loan. By the middle of 1907, the state had gained control over one-half of the world's visible supplies.40 The state's coffee purchases did not drive up the price. In fact, prices fell in 1907. The members of the consortium demanded that São Paulo compensate them for the decline. More financially strapped than ever, the Paulistas turned to another archenemy of nationalists, the North American Percival Farquhar, for help in protecting the economy. Farquhar was seeking to create the mammoth Brazil Railroad (discussed in chapter 4) by leasing publicly owned railways. In return for the lease to São Paulo's stateowned Sorocabana Railway, the state government demanded a two millionpound loan. Farquhar attempted to float a bond issue on the Paris stock exchange in the state government's name, but the French government prohibited the issue because it opposed valorization. Finally, Farquhar launched the issue in the name of the Sorocabana Railway and forwarded the funds to São Paulo.41 The state required still additional resources. A year after the beginning of valorization, the federal government finally came to São Paulo's aid. Once the program showed itself to be workable, the Rothschilds were willing to

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make a cautious loan to the federal government for São Paulo's use. This loan also proved insufficient. The next year the state of São Paulo contracted a fifteen million pound loan guaranteed by the federal government to consolidate the previous debt and to provide additional funds. The loan, advanced by an international consortium, was the first major foreign loan a Brazilian government had taken from financiers other than the Rothschilds in more than fifty years. It marked the beginning of the internationalization of bond investments in Brazil. This move also consolidated the position of foreigners in the valorization program. The loan essentially took control of valorization stocks entirely out of the hands of São Paulo's government and gave it to a committee representing the lenders. São Paulo had only one representative; he had veto power, but in the case of a dispute between the financiers and São Paulo, the questionably neutral Bank of England arbitrated. The bankers controlled the remaining coffee stocks purchased in 1906-1907. Moreover, São Paulo's Congress could not pass any new laws concerning the commercialization of coffee nor contract any additional foreign loans for two years without the consent of the committee.42 After 1908 the price of coffee began to rise, but because of the manipulations effected by the Sielcken and Arbuckle houses in controlling the sale of valorization coffee in the United States, they kept their transactions off the New York coffee market and only sold to buyers who pledged to do likewise. As many importers on the market had large futures obligations and faced expulsion from the exchange if they did not produce the coffee, its price was bid up. This provoked the U.S. government to join the French in oposition to valorization. The Justice Department threatened confiscation of the valorization stocks because they were in constraint of trade. North American progressive Senator George Norris campaigned hardest against valorization. He argued that "the great international Coffee Trust" was exploiting the American consumer: "Other monopolies levy their tribute but monster is a daily uninvited guest at every breakfast table in the land." He particularly opposed the involvement of the São Paulo government because he believed that this precedent foreshadowed a new stage in the development of trusts, in which "the nations themselves shall become participants in these great combinations" to monopolize "the production of their own country at the expense of the consumers of the balance of the world."43 Thus, although many Brazilians argued that valorization was a blow against the oligopsony control of foreign trusts and a struggle to rescue free trade, North American trust busters attacked it. The U.S. Circuit Court threatened Sielcken with confiscation of valorization coffee if it were not sold within a few months. It was, and the 1908 loan was repaid and the committee overseeing it was disbanded in 1913.

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Although the first valorization in effect ended in 1913, its denouement came only in 1921. At the outbreak of World War I, 1.8 million sacks of São Paulo's stocks still sat in warehouses in Europe. Before hostilities broke out, the stocks were rapidly liquidated and the receipts deposited in a German bank for transfer to Brazil. When the war began, the German government confiscated the funds. Only in 1921 did it return them, but by then the disastrous devaluation of the mark had shrunk the value of the deposit to one-tenth the original sum.44 The first coffee valorization set an important precedent, but most people continued to oppose formal state intervention. Afonso Pena had written to Rodrigues Alves in the middle of 1907, "I am not inclined, as you know, toward government intervention in commodity markets, but in view of the exceptional situation in which we find ourselves, I believe the aid requested completely justified." A year later he hoped that the stocks would be sold as quickly as possible "to remove an element that damages our credit in Europe."45 Few long-range institutional changes followed this state intervention. The main change came as São Paulo and Minas attracted French capital for the establishment of mortgage banks. Minas employed some of the proceeds from a surtax to lend ten thousand contos to the semiofficial Banco de Crédito Real in 1908, and São Paulo established seven small Bancos de Custeio Rural, which received a total of one thousand contos. More important, in 1914 São Paulo got a federal loan for agricultural credit and purchased 30 percent of the Banco Hypotecário. In 1913 Minas contracted some warehouses in Rio for storing coffee and São Paulo guaranteed profits on warehouses. Nonetheless, coffee financing and warehousing continued to be woefully inadequate. No effort was made to fulfill the Taubaté treaty's call for a coffee exchange in Brazil until 1916, nor had a federal mortgage bank surfaced. Indeed, many of the steps that had been taken were undone. In 1911 the Commission for Commercial Expansion ceased receiving funds. The next year the prohibition on planting new land in São Paulo ended, and in 1914 the Caixa de Conversão went out of existence.46 The Second Valorization When World War I sharply reduced coffee exports, the federal government was much quicker to come to the sector's aid that it had been during the earlier crisis. Although coffee prices began to fall after 1912, the war began to affect exports seriously only in 1917, when stepped-up marine warfare reduced international shipping. The 1917-1918 harvest was onethird that of the 1906-1907 crop, yet it threatened to glut the world market as demand sank. Planters again clamored for public assistance. The private sphere did not have the resources to finance the stock because of the

74 The Defense of Coffee contraction of the money supply after the exodus of foreign capital and the closing of the Caixa de Conversão in 1914. Foreign financial markets were also closed to Brazil for coffee's defense during the war. The federal government under the Mineiro President Wenceslau Brás quickly came to the rescue, this time by employing the resource that was most accessible: it printed 110,000 contos to lend to the State of São Paulo. Congress intended this loan to be a one-time affair to resolve a momentary problem. The paper money would be retired from circulation after the stocks were sold (in fact, the currency remained in circulation). São Paulo used the funds to take almost three million sacks off the market. The federal government also entered into a commercial treaty with France to ease the coffee surplus. When Brazil declared war on Germany, it confiscated all German ships in Brazilian waters, forty-two in all. The French wanted to rent thirty of them for the war. In return, they promised to purchase two million sacks of coffee and a total of one hundred million francs of Brazilian goods. It was the first time that the federal government took such an active role as a commercial intermediary. Since neither São Paulo's purchases nor the Brazilian-French agreement involved foreign financing, Brazilians controlled the stocks of the second valorization and Brazilian exporters dramatically increased their participation in exports, surpassing 50 percent of the total in 1918.47 Brazil's second valorization proved highly successful as prices rose quickly after the war.48 Even though the prime causes of coffee's prosperity were a freeze in 1918, the resurgence of international commerce after the war, and momentary international inflation, the valorization experience paved the way for future, more institutionalized interventions. The Third Valorization In 1920 the world market rather than Brazilian production again forced the state to intervene. Though Brazil's crops were not particularly large, prices fell by two-thirds between 1919 and 1921, as economic policies started in the United States to combat the postwar inflation produced a sharp deflation. Epitácio Pessoa's administration first employed the rediscountíng facilities of the newly established Carteira de Redisconto of the Banco do Brasil to purchase 4.5 million sacks. Dependent on Paulista support, Epitácio declared before a planter congress that, "although averse, in principle, to a policy of national economic intervention, the federal government, given the exceptional nature of the current situation, does not want to fail to enact the measures called by [this] congress."49 The third valorization was part of a much larger attempt at institutionalizing federal economic intevention. In August of 1921 Congress passed a law designed principally to aid coffee, but other sectors also fell

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under its umbrella. It foresaw a greatly enhanced role for the Banco do Brasil as a bank of issue with a rediscount section for coffee warrants, an exchange section to stabilize the milréis, and a coffee section to prop up prices by periodically purchasing and selling coffee. The National Mortgage Bank was to complement the Banco do Brasil's activities. Congress also established an Institute for the Permanent Defense of Coffee. Epitácio entered into international agreements during his administration that might have served as important precedents for a more active state role in commerce had they been more successful. Following the lead of his predecessor in the French agreement, he entered into treaties with both Italy and Belgium. The treaties stipulated that the countries involved provide reciprocal credit for purchases of up to one hundred thousand contos. The Belgian government never took advantage of the line of credit extended to it, but the Italians bought over nine million dollars of goods under the treaty.50 Although the second and third valorizations initially relied on national resources to defend coffee, it soon became apparent that the third would require a foreign loan. The Banco do Brasil could not finance the program over an extended period. Epitácio turned to British bankers to negotiate what was to become one of the most controversial loans of the era. The scarcity of capital in the postwar years forced Brazil to accept onerous terms for the nine million pounds it borrowed in London and New York. The government had to underwrite part of the loan itself, pay the cost of storing coffee that served as the loan's collateral, and pay a 3 percent commission on every sack of the stock bought or sold. Moreover, the loan could not be liquidated in less than ten years, and then the government had to pay 102 percent for the original 93 percent loan. The only way of repaying the loan earlier was through direct purchase in the stock market, where the government would face commission charges and would be driving up the value of the bonds.51 More serious than the cost of the loan was the government's essential loss of control of its huge stock of coffee. Whereas a Brazilian firm made all of the purchases while the federal government financed the program, the British-owned Brazilian Warrant Company, which represented the creditors, became the sole buyer and seller of coffee. The federal government had a representative on the committee with a veto, as in the 1908 loan, but had little control over the timing and the amount of coffee sold. The sales receipts from coffee could only be used to purchase more coffee, redeem the nine million-pound loan in the stock market, or purchase British government bonds. The lenders refused to allow the Brazilian Treasury to invest the money in redeeming the 1898 Funding Loan to improve its credit. In other words, it could buy into the British debt, but not into the Brazilian. But it was another feature of the loan that most animated the opposition to Epitácio. His successor, Arthur Bernardes, maintained, along with many

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others in his government, that the loan handed control of the coffee market over to a foreign company for a period often years. The loan stipulated that the government would not engage in another defense program until the bonds for this one had been repaid. As they could not be redeemed outside of the stock market in less than ten years, Bernardes thought that the Brazilian Warrant Company would control the market for that length of time. However, the government could, and did, purchase the bonds through the stock market in much less time; by 1924 the program was over.52 The central role played by the Brazilian Warrant Company in the valorization points to the fact that, whereas the Defense Program was intended to defend the national economy, it did not always "Brazilianize" the commercial sector. The first and third valorizations, in fact, strengthened the hand of foreigners. Indeed, the British Warrant Company prospered largely because of the state's intervention in coffee. The company, founded in 1909 by one of Brazil's oldest and largest exporting firms, began ingratiating itself with important members of the ruling class from the outset by appointing as one of its directors, Paulo Prado, São Paulo's representative on the 1908 loan committee. With a capital of three hundred thousand pounds, the company purchased two warehouses in Santos on which the state guaranteed 6 percent profits. The company also gained a government promise to guarantee profits on all other warehouses it built in the succeeding ten years. The company then purchased a coffee clearinghouse and established banking operations. The British Warrant Company was thriving in valorized Brazil to the extent that by 1918, nine years after the company first incorporated, its capital had almost tripled, to 862,000 pounds; it recorded net profits in 1918 of almost 15 percent. After the war its grip on the Brazilian market expanded with the third valorization.53 The third valorization, like the previous one, helped prices rise. It did not, however, serve as a step toward institutionalized federal interventions. President Bernardes (from Minas Gerais) vetoed the Permanent Defense of Coffee. He refused to pass it, despite being elected on a platform favoring the defense and despite having supported, as governor of Minas, the third valorization and having pushed for the growth of the coffee sector.54 He and his Mineiro supporters fought the institute on a number of grounds. First, he believed that the third valorization gave control of Brazil's stocks to foreign exporters and bankers and misappropriated funds. He also objected to the federal government's permanently holding on to stocks because then it had to protect the value of its own stock, even if an intervention would not otherwise be necessary. The third valorization had necessitated the purchase of more than one million sacks in addition to the collateral stock for just such a reason.55 Second, he believed that given the Treasury's financial crisis the federal

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government could not invest the substantial funds called for by the program. The price of coffee seemed sufficiently high to him. Though he supported defending coffee from speculators, he did not want to raise it artificially above levels that the market would set naturally.56 Finally, Bernardes and his Mineiro clique rejected the defense because it would benefit São Paulo disproportionately. Although Epitácio had adopted the doctrine that coffee was a national problem requiring a national solution, Mineiros were only willing to come to its aid in times of great troubles, even though their state was the second-largest coffee producer. The Bernardes group perceived the federal subsidy of coffee to be a subsidy of São Paulo. Bernardes echoed the sentiment of many of his fellow Mineiros when he lamented that São Paulo was "formidable"and "a danger to national integration," whereas Minas was "poor."57 He believed that the Paulistas' economy thrived under valorization and its growth caused its neighbors' decline. The Permanent Defense of Coffee Because of Bernardes's opposition, the Paulistas decided to go it on their own. Their Permanent Defense of Coffee, as the name suggests, represented an important departurefromthe valorizations of the past. First, it was not an ad hoc reaction to a crisis in the world market, as the earlier efforts had been, but an institutionalized program to maintain prices already rather high. It signaled a recognition of the permanent role the state should play in regulating the coffee market. Actually, the institutionalization simply ratified an existing reality, as São Paulo had intervened in coffee almost continuously since 1906. There was a realization that the inherent structure of the market demanded state interventions in order, as São Paulo's secretary of agriculture said, "to defend ourselves against machinations that seek to alter the conditions of legitimate trade to return to the true relation of supply and demand."58 The main object was not state coffee purchases, which were infrequent, but a restructuring of the coffee system by regulating shipments to ports and extending agricultural credit so that planters no longer would be vulnerable to commercial speculation. Although the Permanent Defense was indeed an important break with the principles of liberalism, few planters viewed it as such. Mário Rolim Telles, secretary of finance for São Paulo and head of the Coffee Institute, observed, "In theory, the state's intervention is always to be condemned [as it] restricts the liberty of commerce and alters the natural course of economic phenomena." However, he continued, the Permanent Defense stood as an exception because of the singular importance of coffee for the state and for the country's balance of payments.59 São Paulo started institutionalized valorization with the Paulista Institute

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for the Permanent Defense of Coffee in 1924, which supervised the financing, sales, and advertising of the state's crop. It was originally supposed to represent both the state and the coffee planters; its president was the state's secretary of finance, its vice-president, the secretary of agriculture. (It is very suggestive that state and federal ministries of finance always had much more to do with valorization than did the agriculture ministries, as the first dealt more with the balance of payments and the exchange rate, whereas the second more with agricultural production in and of itself.) Two planter representatives and one from the Commercial Association of Santos filled out the central committee. After 1926 these three members of civil society were relegated to an advisory committee with little influence over policies. Nonetheless, as planter interests still dominated politics in the state, one could argue that state control of the program actually constituted planter control in another guise. We shall see, however, that because of the varied interests of the state the equation proved more complex. The second key element in the defense scheme was the Bank of the State of São Paulo (BANESP). Founded by French capitalists in 1908 with a São Paulo State profit guarantee, the bank gradually became a mixed enterprise and the official financial agent of the state government. BANESP increased its capital from twenty thousand to fifty thousand contos in 1926; the Coffee Institute took 20 percent of its stocks and the state government took 70 percent. Because of its privileged position as a state bank, BANESP had enough funds at its disposal to become, in the words of a fazendeiro-federal deputy, "the only institution of agricultural credit to which [Paulista] agriculture can appeal."60 The bank borrowed 8,750,000 pounds to finance coffee loans. The Coffee Institute borrowed 10 million pounds, much of which it deposited in the state's bank. In 1930 the state took out 20 million pounds more.61 Tax funds also helped finance the Permanent Defense. A one gold milréis per sixty-kilo sack of coffee exported tax was affixed in 1924 and an additional 220 reis per sack for advertising abroad.62 São Paulo had the greatest capacity of any state—and the greatest interest—in defending coffee. However, to regulate the flow of the beans to the port agreements with other coffee-producing states were necessary. Paulistas first signed a number of bilateral accords. A bumper crop in 1927 threatening to send prices into a tailspin finally convinced the other producers to meet and establish the second coffee agreement (the first was the Treaty of Taubaté). In September of 1927 representatives from São Paulo, Minas Gerais, Rio de Janeiro, Espírito Santo, Paraná, Bahia, and Pernambuco signed the pact. Its principal feature was the regulation of the amount of coffee that each state could send to port every month. By keeping most stocks stored in the interior rather than the

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ports, exporter control over the market was weakened. Stock could be held for more than one year if prices so demanded. The treaty called for states to charge two hundred reis per sack for advertising and for the other states to adopt the São Paulo surcharge.63 Agricultural credit was an essential element of the plan. The Permanent Defense called for loans to planters on their warehoused coffee to allow them to hold it off the market. Except in the case of an emergency, the plan foresaw relatively few state purchases, unlike the first three valorizations. The involvement of the states was directly proportional to the size of their coffee exports. The Paulista government built and rented warehouse facilities for over thirteen million sacks and lent agriculture over 650,000 contos by 1930. Minas Gerais was the second most active. The statecontrolled Banco de Crédito Rural was the recipient of the great majority of public coffee funds. The state also constructed and leased out warehouses to store coffee. In 1928 an institution was created to oversee the plan, the Instituto Mineiro de Defesa do Café. Unfortunately, because of Minas's relative poverty, the institute proved woefully inadequate. Although its warehouse facilities reached three million bags, agricultural loans stood at only 30,526 contos in 1929.64 The State of Rio de Janeiro established a coffee defense agency in 1928, the Instituto de Fomento e Economia Agrícola. Because Rio was exporting far less than its neighbors, its revenue was much smaller. The institute by 1929 had lent only 5,183 contos to agriculture. It also offered coffee sacks at cost, owned warehouses holding three hundred thousand sacks, and rented others. Espírito Santo, Paraná, and Pernambuco had similar participation.65 The federal government under Arthur Bernardes did little to aid the Permanent Defense. His main concession, which facilitated the financing of the program, was to allow the issue of warrants on coffee stored for long periods in warehouses. On the other hand, he directed the Banco do Brasil to refuse loans to Paulista agriculture, even though the state had accounted for a large share of the bank's deposits. He also sold the government of São Paulo the eleven federal warehouses he had commissioned to be built.66 Bernardes's successor, Washington Luís, was enthusiastically in favor of the Permanent Defense. In his first three years in office he gave considerable federal support to the program. This was to be expected, as he had been governor of São Paulo when the Permanent Defense was mounted and had long been one of coffee's strongest advocates. Whereas Bernardes had felt the foreign loans necessary to prop up coffee would undercut the country's credit and currency, Washington Luís argued that "the problems of coffee and exchange are completely related so that if the stabilization [of exchange] makes the defense of coffee practical, the latter, in turn, is becoming the principal factor in stabilization."67

80 The Defense of Coffee Washington Luís encouraged federal government assistance for the Permanent Defense in two ways. First, in 1927 Congress assumed the oversight of the flow of coffee to ports to guarantee that the states were abiding by the accord. Second, and more important, the Caixa de Estabilização was reinstituted in 1926 to provide a stable, cheap milréis.68 With the Paulista president at the helm of the federal government, the Permanent Defense ceased to be directed solely by the states; Washington Luís exerted considerable influence.69 Partly, this relationship stemmed from having a Paulista president who was at the same time the patron of the Paulista governor. The superior monetary and fiscal tools of the federal government also made its cooperation important. As coffee entered a crisis in the last years of the Republic, the weight of the federal government grew. For the first few years, the institute was a great success. The program was financed almost entirely by São Paulo. BANESP extended warrants for coffee stored in the regulating warehouses, mortgage loans offifteenyears, and advances on berries still on the trees. This, together with the loans of native and foreign banks, allowed planters to keep their crops from the market. São Paulo, by September of 1929, had withheld a total of 8,221,633 sacks and the other states combined had held back only 1,113,862 sacks. In 1928 alone BANESP financed 4,780,679 sacks.70 Clearly, this was not enough to cover all production, but it set a minimum; factors and exporters had to conform to the prices established by BANESP. The price of coffee exports climbed significantly. In dollar terms it rose from under fifteen cents a pound in 1923 to over twenty-four cents two years later. Through 1929 the export price remained high (see table 7). In terms of milréis, planters saw even greater gains once the Caixa de Estabilização devalued the currency after 1926. High prices were not maintained without a struggle. In 1927 a crop fully 40 percent larger than the previous record (1906) put the institute to the test. Importers in the United States believed that the Permanent Defense could not finance and stock such a large harvest. Speculators entered the New York market to break the Coffee Institute. The institute surprised them with its ability to keep the excess off the market and drive up prices.71 The 1929 crop, however, proved just as large as that of 1927 and the already-strained system faced disaster In this atmosphere a disagreement between coffee planters and the government emerged. At first Washington Luís sided with the Coffee Institute. In 1928 he had authorized the Banco do Brasil to lend 16,856 contos to São Paulo and promised that the bank would lend an additional 100,000 contos to agriculture.72 The president's insistence on keeping up prices drew the ire of the Partido Democrático in São Paulo, which tried to exploit the issue for the forthcoming elections. One of the party's most vocal members, Paulo de

Table 7. Coffee Production, Exports, and Prices

Year

Brazil's Exports Brazil's Exports Brazil's Exports (thousands of (thousands of Coffee Exports Brazil's Production pounds sterling) as % of Total (thousands of sacks) a (thousands of sacks) milréis)

1889-90 1890-91 1891-92 1892-93 1893-94 1894-95 1895-96 1896-97 1897-98 1898-99 1899-1900

172,258 189,894 284,167 441,443 452,326 499,615 543,336 524,338 525,682 465,664 470,993

18,983 17,850 17,561 22,028 21,712 20,884 22,385 19,663 16,506 13,830 14,459

66.5 67.7 64.7 71.4 67.8 68.5 68.7 69.4 63.8 55.3 56.6

4,482 5,592 7,515 6,661 6,269 7,242 6,007 9,928 11,213 9,447 9,564

5,586 5,109 5,373 7,109 5,307 5,582 6,720 6,744 9,463 9,267 9,771

1900-01 1901-02 1902-03 1903-04 1904-05 1905-06 1906-07 1907-08 1908-09 1909-10

484,342 509,598 409,841 384,298 391,587 324,681 418,400 453,764 368,285 533,870

18,889 23,979 20,327 19,076 19,958 21,421 27,616 28,559 23,039 33,475

56.9 59.0 55.8 51.7 50.6 48.0 52.0 52.7 52.2 52.5

11,373 16,283 12,994 11,193 10,597 11,055 20,409 11,349 13,039 15,440

9,155 14,760 13,157 12,927 10,025 10,821 13,966 15,680 12,658 16,881

1910-11 1911-12 1912-13 1913-14 1914-15 1915-16 1916-17 1917-18 1918-19 1919-20

385,493 606,529 698,371 611,690 439,715 620,488 589,201 440,258 352,727 1,226,463

26,696 40,401 46,558 40,779 27,000 32,191 29,281 23,054 19,041 66,081

42.3 60.4 62.4 62.3 57.7 59.7 51.9 36.6 31.1 56.3

10,945 13,115 12,111 14,425 13,497 15,981 12,783 15,816 9,859 7,605

9,724 11,258 12,080 13,268 11,270 17,061 13,039 10,606 7,433 12,963

1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30

860,958 1,019,065 1,504,166 2,124,628 2,928,572 2,900,092 2,347,645 2,575,626 2,840,414 2,740,073

40,456 27,067 39,549 44,182 65,747 74,032 69,582 62,689 69,701 67,307

49.1 59.6 64.5 64.4 75.8 72.0 73.8 70.7 71. 71.0

15,115 12,955 10,351 15,060 13,336 14,088 18,274 28,834 13,621 28,200

11,525 12,369 12,673 14,466 14,226 13,482 13,751 15,115 13,881 14,281

1930-31

1,827,577

41,179

62.6

16,600

15,188

Table 7—continued Exports/ Production

Brazilian Production as % of World Production

1889-90 1890-91 1891-92 1892-93 1893-94 1894-95 1895-96 1896-97 1897-98 1898-99 1899-1900

124.6 91.4 71.5 106.7 84.6 77.1 111.9 67.9 84.4 98.1 102.2

51.5 53.9 62.9 59.3 59.2 63.0 56.9 66.6 69.8 68.2 68.6

30.9 37.2 52.9 62.1 85.2 89.5 80.8 77.7 55.5 50.2 48.2

17.9 16.7 14.3 17.2 16.5 15.9 12.3 7.9 6.3 6.0

-

42.4 c 52.8c 47.5 c 49.2 c 34.1 c 55.l c 51.4c 54.7c 54.9c 59.9c 60.5c

1900-01 1901-02 1902-03 1903-04 1904-05 1905-06 1906-07 1907-08 1908-09 1909-10

80.5 90.6 101.2 115.5 94.6 97.9 68.4 138.2 97.1 109.3

75.0 81.7 74.3 70.7 73.5 76.0 84.5 76.5 78.7 81.4

52.9 34.5 31.1 29.7 39.1 30.0 29.9 28.9 29.1 31.6

8.2 6.5 5.9 5.6 7.8 8.3 8.1 6.6 8.3 8.8

53.7 61.6 65.2 61.1 63.2 72.8 68.3 74.1 65.3 79.2

1910-11 1911-12 1912-13 1913-14 1914-15 1915-16 1916-17 1917-18 1918-19 1919-20

88.8 85.8 99.7 92.0 83.5 106.8 102.0 67.1 75.4 170.4

74.3 75.0 73.9 73.2 72.8 77.9 76.4 84.0 68.7 48.7

39.6 53.9 57.8 46.1 39.0 36.4 45.2 41.5 47.4 94.6

10.4 14.2 16.0 13.2 11.5 9.6 10.6 10.2 12.1 24.8

72.3

1920-21 1921-22 1922-23 1923-24 1924-25 1925-26 1926-27 1927-28 1928-29 1929-30

76.2 95.5 122.4 96.1 106.7 95.7 75.2 52.4 101.9 50.6

72.3 67.3 64.5 68.7 60.0 59.3 66.2 78.3 61.1 69.1

74.7 82.4 118.7 146.9 205.8 215.1 170.7 170.4 204.6 191.9

19.0 10.4 14.3 14.8 21.3 24.5 22.3 18.7 23.2 22.1

70.1 64.4 69.8 70.5 63.6 65.8 63.0 66.9 65.0 69.8

1930-31

92.1

56.5

119.5

13.2

61.0

Year

Rio Price New York Price (cents/lb.) (milréis/lb.)b

São Paulo's Exports as % of Brazilian Exports

-

72.l d 73.5 62.7 67.0 75.3 66.4 56.3

Sources: DGE, Anuário estatístico, 1939-1940, p. 1378; Minas Gerais, Minas Gerais, pp. 94, 95; Holloway, "Migration and Mobility," p. 463; Taunay, História do café no Brasil, v. 13, pp. 23, 117; Wickizer, The World Coffee Economy, p. 249. a Each sack contained sixty kilos of coffee b The price is for Rio number 7-grade coffee c São Paulo's production as % of Brazilian production for these years d The figures after 1913 are for Paulista production as % of total production, not exports

The Defense of Coffee

83

Moraes Barros, asserted that the policy was ruining planters. By withholding its crop, São Paulo was leaving the market open to its competitors. The high prices were an illusion; although the export prices may have remained high, in parts of the interior fazendeiros were selling their crops for less than onethird of the official price. They did not want to store their harvest in the regulating warehouses and wait for a year or more to realize the sales (though they would get the sixty milréis advance right away). The solution was to export at cheaper prices, thereby diminishing the stock, undercutting competing nations, and, it was hoped, opening new markets. Moraes Barros maintained that this policy was rejected purely because Washington Luís wanted Júlio Prestes to be the next president. High coffee prices, even if fictitious, made a good campaign weapon. Moraes Barros asserted that the Coffee Institute was simply a political arm of the Paulista Republican party, not representative of fazendeiros (an observation that had a good deal of merit). Nonetheless, the deputy could not deny that the majority of Paulista planters enthusiastically favored the institute's policy.73 Washington Luís's policy had economic as well as political virtues. Rolim Telles had argued that coffee was price inelastic, so that the exportation of a large stock of coffee at low prices would not increase consumption but it would drive down the price. It could, however, provide a weapon for foreign importers, who would buy the coffee cheap to amass in their warehouses and release when prices rose. At first, Washington Luís accepted this position, as coffee is quite inelastic. On the other hand, the artificial prices were encouraging North American importers to substitute for the Brazilian beans with higher-quality and not much more expensive Colombian and Central American ones. But as the milréis's value began to tumble, Washington Luís's financial plan was threatened. He changed directions. First, he directed the Banco do Brasil to restrict credit and to end coffee loans. He did not want the bank to risk its assets or its future as the central bank. The institute was in dire straits. It did not have sufficient funds to finance coffee. At the same time, because of the economic downturn, banks were increasing liquidity and there was a run on bank deposits. This reduced resources further. Finally, the president relented and instructed the Banco do Brasil to extend discounts in São Paulo. They reached 130,000 contos by the end of 1929. To compensate for the price decline that would inevitably result from BANESP's liquidity crisis, Washington Luís directed the Coffee Institute to drop its export price and expand foreign sales. The president hoped thereby to increase total foreign earnings to finance the return to the gold standard, to which he gave top priority. Thus when planters in 1929 called for a moratorium on the coffee debt and the issue of 400,000 contos, Washington Luís refused.74 The abandonment of the coffee defense by a Paulista president aroused

84

The Defense of Coffee

The abandonment of the coffee defense by a Paulista president aroused dissatisfaction in São Paulo and undermined Washington Luís's power base. Because Getúlio Vargas expressed support for a valorization program, his 1930 victory was facilitated. This is ironic, given the common view that he represented the rising industrial bourgeoisie and Washington Luís and Júlio Prestes were candidates of the coffee planters.75 The institute finally succeeded in finding foreign capital to prevent coffee's total collapse. However, because the collateral stock now was supervised by the bankers and a set amount had to be sold every year for the next ten years, the institute lost much of its control of the market. Because of overproduction and the Depression, coffee prices fell from an average of a little over twenty-two cents a pound between 1924 and 1928 to under eleven cents a pound for the next five years and a mere nine cents from 1934 to 1948.76 Thus the Permanent Defense of Coffee failed to meet the crisis of the Depression. What did this failure signify for the valorization program as a whole? The Defense of Coffee: The State's Harvest Valorization brought about significant changes in the coffee sector. The fazendeiros' two principal problems—insufficient labor and credit—were largely overcome. The immigration program attracted a massive wave of workers. Labor was so abundant, in fact, that when the price of coffee tumbled in 1929, planters were able to reduce wages by up to 40 percent.77 The credit system also expanded enormously, with the vast majority now in the hands of national banks. Even though the BANESP provided less than one-third of the funds needed by Paulista planters, its credit capacity was an enormous improvement over the first days of the Republic. Although the bulk of the funds that the institute and the BANESP employed came from abroad, control was in the hands of Paulistas. National mortgage, loan, and discount figures (discussed in chapter 2) indicate the strengthening and Brazilianization of the national banking system as a whole.78 Transportation became more efficient as the national network grew and became integrated. The amount of track more than tripled during the period and over 70 percent of that growth was in the coffee-producing areas. At the same time, the cost of bringing the crop to the train decreased, as the nation's road system expanded impressively in the last half of the 1920s. On the other hand, transportation costs in newly opened areas in the interior were four times those of the older, more accessible areas.79 The factor, who protected the planter from the exporter, did lose ground. By the 1920s many important exporters, such as Brazilian Warrant, Arbuckle, and A&P, had buyers in the interior. Nonetheless, the factors' demise was neither as early nor as complete as has been postulated. The

The Defense of Coffee

85

Permanent Defense armed them and planters with a potent financial weapon to use against the exporters' buyers in the interior.80 The lack of warehouse facilities also was largely overcome. Whereas the planter and the factor formerly had had to sell quickly because they had little place to store the sacks for any extended period of time, by 1928 the Permanent Defense enabled them to store thirteen million sacks in Brazil and to hold the coffee for over a year. That total was twice as large as the average yearly crop of the 1890s. Moreover, the great majority of warehouses were in the interior, not in the ports. This meant that Brazilians controlled not only the stock itself but information, as they knew how much was tucked away in the interior, far from the view of the exporters.81 A consequence of the vastly expanded warehouse facilities was the end of the seasonal gluts in the coffee markets. At the turn of the century, 60 percent to 70 percent of the year's crop reached market between July and November. By 1930 the crop was evenly distributed throughout the year.82 The state government also created a coffee market in 1916 in Santos. Transactions became institutionalized and information on prices and sales more generally known. As we have already seen, the exchange market achieved an equilibrium. The entry of the state greatly dampened seasonal oscillations in the exchange rate, which had hurt planters. The transformations in credit, warehousing, exchange, and the coffee market, which evolved slowly through the three valorization programs and peaked in the Permanent Defense, undercut the foreign exporter's and importer's positions. As a result, Brazilian exporters achieved a position in the market greater than that which they had enjoyed at any time in the nineteenth century. Whereas at the turn of the century they were responsible for less than 10 percent of all exports, by the 1920s they were contributing between 30 percent and 40 percent.83 The success of the valorization in propping up the price of coffee was mixed, however. The early valorization efforts worked largely as a result of outside factors. Prices in the international market recovered from their low 1906 level only in 1911 (see table 7); the first valorization prevented them from declining more, but did not raise them. The scheme was effective because in the years after 1906 production fell, allowing São Paulo to sell off its stocks slowly. The most favorable aspect of the program for fazendeiros was the stabilization of exchange, which did not affect international commerce. The second valorization brought immediate results; in two years the price more than doubled. This occurred, however, not because the government bought a few million sacks of coffee but because the 1918 frost greatly restricted supply. Many planters went bankrupt because of the freeze. Even without the government's intervention, prices would have risen abruptly, though the profit would have been made by

86

The Defense of Coffee

foreigners. As it was, much of the profit reverted to the federal government and São Paulo rather than to the planters. The third valorization witnessed a sharp elevation in prices because as the world recession of 1920-1921 ended, world consumption returned to normal levels. In addition, the 1922 crop was particularly small, permitting the export of almost three million warehoused sacks.84 In all three cases, the market returned to equilibrium due to forces unrelated to valorization. The Permanent Defense, unlike its predecessors, affected the market strikingly because stocks equal to almost two-thirds of world production remained in Brazilian hands. The exceptional crop of 1927, for instance, was handled without an appreciable decline in prices. Indeed, the international price for 1924-1929 was almost twice the average price for the preceding twenty-three years—21.8 cents a pound compared to 10.6 cents.85 Prices plummeted after 1929, however, remaining, until after World War II, at levels well below those of the ten years that preceded the founding of the Coffee Institute. In the interior, fazendeiros received half the price quoted in Santos. Remarkably, no one anticipated the vast increase in coffee production that drove down prices. A study of the question, commissioned by São Paulo in 1925, reported that Brazil faced no problem with overproduction because only Brazil would be capable of stepping up output to meet growing demand, and that only after "many years of extraordinary efforts."86 The New York brokerage firm of Nortz and Company believed in the middle of 1928 that Brazil was comfortably in control of the market: "Common sense tells us that coffee plantings must be greatly stimulated by present prices but experience shows us that although the number of coffee trees has been more than doubled in São Paulo during the last twenty years, the average output of this state has not increased and that in particular there has only been one big crop—that of 1923-24—aside from the present one, comparable to the bumper crop of 1906-07." 87 God was Brazilian after all and would come to the rescue with a timely freeze. Unfortunately, overproduction would eventually force the Vargas regime to destroy fiftyseven million sacks of excess coffee. The cause of the 1929 price decline, however, was not the new tree plantings undertaken because of the high prices the Permanent Defense promised. As the program only began in 1924 and coffee requires five years to mature, most of the new trees—which did expand 33 percent in São Paulo between 1924 and 1930—had not yet entered into production. The near record crop was simply a freak of nature. The profitability of the valorizations and the Permanent Defense is controversial. Traditionally, the view has been that the first three valorizations were profitable. Indeed, it was this profit that encouraged each subsequent program. Politicians at the time certainly thought that they were profitable, yet that conclusion is debatable.88

The Defense of Coffee 87 The first valorization scheme was a success insofar as São Paulo succeeded in paying off the entire debt contracted for it. In 1917 Paulista Governor Altino Arantes reported that the state had spent 11,360,248 pounds on the valorization and had sold coffee for 12,229,469 pounds, a profit of 869,221 pounds. Moreover, the state still owned sacks of coffee in Europe that when sold would account for another 3,400,000 pounds. In fact, the state did not make a profit because of the confiscation of its bank funds in Germany during the war. After the war, despite Epitácio Pessoa's efforts at the Versailles Peace Conference to restitute the real value of the deposits, São Paulo received only the 120,000,000 marks it had deposited. Postwar inflation made them worth only one-tenth of the prewarfigure.As a result, the state lost approximately 5,400,000 pounds. The net loss then was about 1,100,000 pounds. In later years São Paulo's government claimed a profit of 10,000,000 pounds on the first valorization, but it included 20,000,000 pounds of export taxes as assets. There was no profit.89 The second valorization, on the other hand, was a financial success. Because no loans were taken out but instead paper money was issued, and because coffee prices rose quickly, the operation returned a healthy profit. According to Washington Luís, São Paulo earned 64,467 contos, with the federal government making an equal amount.90 The last valorization was also financially successful, but less so than Epitácio Pessoa and most historians have maintained. The difference between the buying and selling prices was 165,595 contos, with 159,205 going to the federal government (the rest to São Paulo and Minas). However, the government had to pay out 126,411 contos on loan service and commissions, as well as 23,514 to the Banco do Brasil for loans; in addition, 5,054 was lost because of the fall in the exchange rate. After these outstanding costs were subtracted, the Federal Treasury realized a mere 4,226 contos.91 Rolim Telles maintained in 1929 that if the Coffee Institute were liquidated at that moment it would show a profit of about five thousand contos.92 With the eventual excess of coffee that appeared in 1929 and the 1930s, the state did not capitalize financially on the Permanent Defense. But such calculations of profit and loss do not measure the true impact of state intervention. Neither São Paulo nor the federal government had entered the coffee market with the intention of making sizable returns. They sought to bolster coffee prices and thereby sustain the entire private sector, maintain the value of the currency, and, as a by-product, increase tax revenues. In these aims the valorizations succeeded. Coffee prices were higher and Brazil accumulated more foreign exchange than it would have otherwise; consequently, the economy operated at a higher level and the federal government and the exporting states levied greater taxes. In this sense, the federal and state treasuries made good investments in the defense of coffee.

88 The Defense of Coffee But although the country as a whole gained from the programs, some sectors gained disproportionately. Planters tended to be the chief beneficiaries in civil society. Coffee fazendeiros profited especially from the first valorization and the Permanent Defense until 1929, because of the higher coffee prices. Though they did not realize the export prices in the interior, nonetheless, they were greatly helped out by the state's stabilizing role, the lowmilréis,and agricultural credit. By one estimate, in the late 1920s planters of old coffee lands earned 15 percent a year profit and those on new lands 25 percent to 33 percent.93 Clearly, not even all planters gained equally. Fazendeiros outside of São Paulo received less agricultural aid and there was far less intervention in the Rio market in terms of purchases than in Santos. Moreover, the defense ultimately forced many planters into bankruptcy in the 1930s because of overproduction. Interestingly, the defense seems to have stimulated a growth of small- and medium-sized coffee farms. Certainly, large fazendeiros also benefited. They reaped the gain of higher prices, and because of their collateral and influence, they had more access to mortgage credit. During the Permanent Defense, they bribed officials to ensure that their beans were the first to leave the warehouse for sale at the port. Nonetheless, the price support system militated against the concentration of land that had previously accompanied price slumps. And high prices attracted thousands of new planters, many of them immigrants who had formerly worked asfieldhands, to otherwise marginal land. Where Brazilians owned 90 percent of the value of rural lands in São Paulo in 1905, by 1920 they owned only 78 percent, and by 1934, only 65 percent. The average size of coffee plantations in dynamic western São Paulo fell by 28 percent between 1923 and 1932.94 Foreigners also benefited from valorization, though there was a change in importers attached to the valorizations gained. Sielcken, Wille, and the Brazilian Warrant Company received commissions to buy and sell for the State of São Paulo and at the same time were able to use the state stocks to manipulate prices in favor of their own stocks. The Permanent Defense, however, undercut their position in the market, as the state came to dominate the stocks and agricultural credit. Foreign roasters abroad profited from the price stabilization that the Permanent Defense brought. They did not mind higher prices within reason because coffee was relatively price inelastic, but they did want predictable prices. In fact, in 1925 American roasters petitioned the U.S. government to authorize a loan to the Coffee Institute to help maintain the price level (a loan that the secretary of commerce, Herbert Hoover, prohibited).95 Foreignfinanciersalso gained handsomely from their participation. They were able to extend loans during thefirstand third valorizations (and the last loan to the Coffee Institute in 1930) that showed good returns. The loans to

The Defense of Coffee 89 the Coffee Institute and the BANESP were equally lucrative. These loans were discounted generally over 5 percent and levied 6 percent or 7 percent interest. In addition, the banks often received 6 percent to 8 percent commissions for underwriting the loans.96 On the domestic front, both the Banco do Brasil and the BANESP successfully participated in the Defense of Coffee. As stated, the Banco do Brasil earned 23,514 contosfromthe third valorization. It also served as the intermediary for the federal government for loans for the first and second valorizations and extended credit to São Paulo for the Permanent Defense, especially in 1928-1929. On at least two occasions, it was also involved in coffee purchases that it commissioned through foreign exporters. The BANESP charged 12 percent gold loans, so it exhibited good returns for 1926-1929.97 The principal criticism leveled against the defense of coffee has been that it reinforced Brazil's monocultural export economy. Certainly, the state's participation made the sector more attractive. On the other hand, Brazil had reached the monocultural position without state aid. Although it is true that in the absence of valorization production would have declined more when prices fell, there is little doubt that as soon as prices rose, planters would have rushed back into coffee. Brazilians would have accumulated less capital because the position of foreigners would have remained strong and there would have been more drasticfluctuationsin coffee's price, but Brazil would have continued to meet world demand. Indeed, one could convincingly argue that in the long run Brazilian coffee's international status would have been more secure without the Permanent Defense because it undercut Brazil's principal advantage—low prices—and encouraged European and North American exporters to move to other coffee-producing areas. Brazil's share of world exports declined from a high of 80 percent in 1909 to an average of 54 percent for the 1934-1948 period. Moreover, the rate at which new coffee trees were planted in the years before valorization, 18861900, was five times higher than during the most prosperous years of the Permanent Defense, 1925-1928. Indeed, it appears that the vast coffee surplus that plagued Brazil in the 1930s was as much a result of the failure of the defense scheme as a consequence of its success: the rate of new tree plantings in fertile western São Paulo was twice as high in the years after the collapse of prices, 1929-1932, as during the prior boom years. Planters compensated for falling prices by expanding production. Another intriguing fact that argues against the responsibility of price supports for a monocultural economy is that in São Paulo the growth of crops oriented toward the internal market, such as beans, corn, cotton, potatoes, and rice, was greater than coffee between 1904 and 1930, despite the lack of state aid.98 On the other hand, valorization ultimately channeled more funds to the

90

The Defense of Coffee

coffee sector than was warranted, as overproduction in the 1930s demonstrated. During the First Republic, per capita coffee exports measured in pounds sterling grew an average of 1 percent compounded per year. The GNP, however, grew at an annual rate of 2 percent. There was a weak relationship between coffee's fate and the health of other sectors. In the 1892-1895 period, industry and banking were in crisis while coffee prices showed record highs. The rest of the economy was booming between 1904 and 1912 while coffee struggled with low prices. This trend was especially noticeable in the 1910-1919 period, when the war provoked a fall in coffee prices while the rest of the economy continued at a high level. Even with valorization and the highest coffee prices in Brazilian history in the 1920s, coffee grew at one-fifth the rate of total national production." What was coffee's contribution to stabilizing the exchange rate and providing state resources, two points that were always central in the apologies for coffee defense? The relationship between the exchange rate and coffee prices was weak because the state intervened to keep the milréis low. Thus the first half of the 1890s saw record coffee prices and a dramatic fall in the milréis. The end of the 1890s to 1905 witnessed low coffee prices and a rise in the exchange rate. During the unprecedented prices of the second half of the 1920s, the exchange rate fell to record lows. In essence, coffee impeded the possibility of a valuable milréis; on the other hand, the coffee loans helped the country's credit rating because they were repaid. After the first valorization, there never was much difficulty in procuring other loans, even after the fall of coffee prices during the Depression. Coffee's overt contribution to national wealth dropped during the First Republic in the sense that it provided proportionately less tax revenue. A more indirect measure of coffee's importance to the Federal Treasury was the relative importance of import duties in total revenues. They fell from over 70 percent in the prewar years to under 50 percent in 1930. However, coffee indirectly augmented federal revenues by stimulating other sectors so that the consumption tax grew steadily. Valorization and the Permanent Defense permitted a greater share of coffee income to stay in the country by undercutting the position of foreign importers and exporters. The third valorization, by one estimate, funneled an additional one million contos into the economy.100 Thomas Holloway has asserted in his study of Taubaté that "no Brazilian was harmed by the operation [valorization] because it was self-financing."101 The surtax of three to five milréis for the first valorization, an additional tax on the third, and the one gold milréis tax on coffee exports of the Permanent Defense all helped pay off the loans. The federal government's main contribution was the warehouse that it sold at cost to São Paulo. It lent money in the various valorizations and helped to bail out the Permanent Defense in 1928 and 1929, but these were commercial transactions, which

The Defense of Coffee

91

were paid back with interest. Even the international advertising of coffee was principally financed by planters. On the other hand, other sectors were hurt by various aspects of the program. For example, in São Paulo all of the deposits in the Caixa Econômica went to the BANESP for agricultural loans. Clearly, other sectors were thus deprived. Similarly, the considerable profits of the BANESP reverted back into agriculture, principally to coffee, rather than being channeled to other areas. The undervalued milréis set largely for coffee's benefit increased the cost of imports. This together with the inflation fueled by the currency issued for the second valorization increased the cost of living for urban consumers. The state's tax structure also illustrated the distribution of resources to agriculture. From 1912 to 1916 coffee provided over half of São Paulo's income. During the Permanent Defense, coffee contributed only one-third of São Paulo's revenue. Although it is true that other sectors of the Paulista economy grew faster than coffee, the tax restructuring still represented an undertaxation of coffee. Coffee was the principal recipient of state aid and hence should have paid a larger, not a smaller, percentage of the state's income. In Minas Gerais and Rio de Janeiro coffee paid a more proportionate share of the tax bill.102 Although coffee planters were able to exert their superior political power within their states, they failed to force the federal government to channel a disproportionate amount of funds to them. As noted, all federal coffee purchases were a commercial success; they cost the Treasury nothing. The federal government did not establish a mortgage bank, unlike its prosperous neighbors to the south, and it sold its warehouses to São Paulo. The union's subsidization of immigrants had already ceased in 1898, when a Paulista president ended the program and São Paulo assumed the expense. The main concession Congress granted the presumably hegemonic Center-South was an inexpensive milréis. Conclusion The liberal Brazilian state came to enact the Third World's first institutionalized interventions in the world market and for a while controlled the price of one of the world's most traded commodities. São Paulo's first valorization led to a federal assumption of coffee's defense in 1917 and finally in 1940 to one of the world's first international commodity cartels— the Interamerican Coffee Agreement. The tortuous path by which the state came increasingly to intercede demonstrates the complex forces at work. The state did not enter the coffee market simply because planters constituted the country's politically dominant faction. In Argentina, Colombia, El Salvador, and Uruguay, for instance, such political power did

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not yield state interventions. Nor did Brazilian coffee's place in the world economy alone explain the interventions. Brazilian rubber and Chilean nitrates occupied similar positions but did not generate substantial state activity. The biological nature of coffee, Brazil's overwhelming dominance of the world market, the strength of the national bourgeoisie, and the nature of the foreign competition forced and permitted state action. Even so, the federal government proved reluctant to aid coffee. Planter presidents refused assistance and provided cautious support only after the State of São Paulo proved it feasible. São Paulo was able to push the process into motion because of the decentralized nature of the regime, because wealthy Brazilian planters dominated production, and because of the regional concentration of the crop; São Paulo alone usually provided between 40 percent and 50 percent of the world coffee output. Foreigners for the most part facilitated the defense programs. They demonstrated that they were not monolithic or conspiratorial; rather, each actor sought to maximize short-run profits. Ultimately, the funds that Europeans and North Americans provided allowed Brazil to undercut foreigners' position in the market and afforded Brazil greater autonomy. Only foreign governments, the United States and France, attempted to block the defense schemes for ideological reasons. Bureaucratic momentum also played an important part in bringing about increased state participation. Clearly, each successful valorization paved the way for the next, and each increased the domain of state activity. But the motivation for such action lay not in a self-interested bureaucratic caste; rather, politicians, many who themselves had personal interests in coffee, wanted to safeguard the fiscal integrity of the Treasury and the health of the currency. This would be in the long-run interests of the state, the economy, and the fazendeiros who reigned; it was not always in the short-run interests of planters. Throughout the First Republic liberalism continued to be the guiding ideology. The argument was dialectical: state interventions were necessary to end distortions in the marketplace and allow the free rein of the forces of supply and demand. The interventions were seen as momentary or partial and applicable mainly to coffee because of its central importance to the economy. Another sector appeared similarly important to the fate of the export economy. The next chapter examines the nationalization of that sector—the country's railroads.

4. The Railway Network

The railroad was the backbone of the export economy. Although the majority of politicians, economists, and members of the ruling class opposed public enterprise on principle, by 1930 Brazil's federal and state governments owned over two-thirds of the nation's track and administered over half of all track. The system grew 242 percent during the Republic. By the end of the period, the Brazilian state had become the world's seventhlargest in terms of railway kilometers; it also reduced foreign presence from a dominant to a relatively minor position.1 There are no systematic studies of the Brazilian railways during the First Republic. This is surprising, given the central importance of the iron rail; without it there simply could not have been the export-led growth of the nineteenth and twentieth centuries. The accepted view is that railroads were built by private capital, largely foreign, to facilitate exports. They were reluctantly nationalized when they were no longer profitable and were then run inefficiently by the state.2 Hence the state intervened to rescue private capital rather than to subordinate or direct it. Although there is some truth to this assertion, it is exaggerated. The state came to play a moderately developmental role due to the demands of the internal economy, bureaucratic momentum, political pressure, and strategic military considerations. It is not surprising that the federal and state governments were influential in fostering railways. Certainly, there was something peculiar to railroads that indicated state action. Nowhere were they built without substantial government guarantees, loans, or privileges; investment requirements were large, indivisible, and slow in proving profitable. In the product cycle, railroads were often one of the first sectors nationalized. State enterprise, however, was not the obvious solution. It may be the logical recourse for "backward" countries, as Alexander Gerschenkron has argued, but it is not one to which countries always resorted. Although Brazil's liberal regime became ever more involved in administering lines, the Argentine liberals, who had been heavily involved in railroad building and administering, began to sell off or rent out their lines at the end of the

94 The Railway Network nineteenth century. The explosion of railroad building in Porfirian Mexico was overwhelmingly generated by private capital. Even when the Mexican Treasury purchased stock in lines in the first decade of this century, control remained in foreign hands. In Uruguay the state was very active in numerous sectors of the economy, yet railroads remained largely outside the government domain during the nineteenth and early twentieth centuries.3 Thus a relatively poor oligarchical regime in Brazil took a much larger part in the construction and operation of railroads than did its wealthier and more populist neighbors. The process of nationalization must be explained largely by conditions peculiar to Brazil. Brazil entered the rail age in the 1850s with strong state participation. Imperial politicians preferred to mobilize private capital in rail construction, so they guaranteed annual profits of 7 percent on invested capital. In the course of the Empire, the concession grants became ever less generous. Guaranteed monopoly zones fell from sixty-six kilometers on each side of the track to twenty, the concessions declined from ninety years to thirty, and profit guarantees fell from 9 percent to 6 percent. When risk-free offers failed to entice capitalists, the government was forced to take a more direct approach: it employed public funds to found some lines and to buy stocks and debentures in other private companies. By the end of the monarchy in 1889, the imperial government owned and operated about thirty-two hundred kilometers of track—34 percent of the country's total—and held substantial interests in major private rail firms such as the Leopoldina and the Oeste de Minas.4 The biggest and brightest jewel in the imperial transportation crown was the Dom Pedro II Railroad (changed to the Central do Brasil in 1889), which connected the capital, Rio de Janeiro, to the hinterland in the states of Minas Gerais, Rio de Janeiro, and São Paulo. A mixed company was formed and construction begun in 1855. The director was appointed by the emperor and over half of the stock belonged to the Treasury. By 1865 members of Parliament became convinced that the private company could not command enough capital to expand the network sufficiently, even though the company's expenses were only running about 65 percent of revenues. Despite the protests of the company's president and stockholders, the profitable Dom Pedro II was completely taken over by the central government.5 By the monarchy's end it had expanded the little network of under 160 kilometers into the largest system in the country: over 800 kilometers in 1889. By 1930 the Central would consist of nearly 3,000 kilometers.6 The Republic After the Republican Revolution in 1889, government leaders officially

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opposed state administration of railroads. The crisis that shook Brazil in the 1890s, however, forced the Treasury to intervene in the rail sector. The federal government engaged in numerous expropriations because railroad profit guarantees weighed heavily on the budget. Few companies with guarantees were able to realize a sufficient return through business operations. Rather than simply fostering nascent lines, government aid became the crutch supporting tottering, decrepit railways. Because subsidy grants depended solely on capitalization, not performance, companies built around grades rather than over them, used shoddy materials and provided bad service. Routes were often awarded because of the political influence of Brazilian planter beneficiaries rather than because of intrinsic economic viability.7 Many railroads, such as the Sorocabana and the Leopoldina, watered stock and overexpanded in the euphoric days of the Enchilhamento. The low rates and unprofitable routes that the government forced on companies also hurt railroad finances, as did the Republic's lowering of profit guarantees. As a result, in 1893, for example, the profits of all foreign companies with guaranteed profits, except the prosperous São Paulo Railroad, averaged only 0.3 percent before subsidies. The Economist noted in 1898 that only two British railroads turned a profit; "of the rest, numbering about a dozen, few if any would have been constructed at all if they had to depend merely on the profits they were likely to earn from traffic. These companies are . . . solely dependent on the guarantees for the payment of fixed charges and dividend distributions."8 The burden of railroad profit guarantees became so onerous that the liberal government of President Campos Sales reluctantly expropriated twelve foreign companies in 1901. Although ideologically he opposed most state economic intervention, Brazil's financial crisis demanded action. In 1898 the union had had to appropriate fully one-third of its budget to pay guarantees. To extricate itself from financial quicksand, the federal government contracted the 1898 Funding Loan, which included a three-year moratorium on railroad profit guarantees and halted railroad construction until 1903. Three years later it bought 2,135 kilometers of private railroad, 13 percent of Brazil's total system, with 16,500,000 pounds borrowed in London. Because the interest on the loan was lower than the former guarantee payments on the lines and the government leased out almost all of the railways it bought, the union saved 379,550 pounds a year from the expropriations. As a by-product, the government became owner of a substantial portion of the country's rail network. The lines bought in 1901 were enlarged over the years by private companies under federal orders so that in 1930 the companies represented a fourth of Brazil's total system.9 The expropriations, however, did not indicate radical nationalism on the part of Campos Sales. The president acted simply to alleviate Brazil's financial crisis. He continued to share the dominant vision of a laissez faire,

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liberal state, declaring, "The powers of intervention by the federal government with regard to the expropriations allowed by the constitution are very limited."10 Only in times of dire crisis did he exercise these powers. British railroad bondholders acknowledged Campos Sales's conservatism; the London stock market reacted favorably to the expropriations.11 After the purchases President Campos Sales and his successors, Rodrigues Alves, Afonso Pena, and Nilo Peçanha, quickly leased out the lines, generally to foreign companies. Campos Sales preferred to remove the government from railroad operations because "long experience has shown there is no real advantage in maintaining railways under the administration of the state.... To hand them over to private enterprise and the stimulating actions of private interests not only relieves the Federal Treasury . . . but widens the sphere of [their] prosperity and usefulness to both commerce and industry alike."12 This reasoning led to a massive, though temporary, alienation of state property through leasing agreements and the formation of enormous foreign railroad companies. The leasing of publicly owned railways to private, principally foreign, firms did not signal the complete triumph of laissez faire policies. Government officials continued to maintain substantial control over the functioning of the leased lines. Congress believed that the federal government should buy up all guaranteed routes and then lease them out to exercise more control as well as to diminish budgetary expenses.13 The federal and state governments imposed restrictions and regulations along with the privileges they awarded to ensure that trains receiving monopolies on their routes, profit guarantees, or leases served the needs of the economy. Federal and state ministers were somewhat successful in promoting developmental routes in addition to those immediately profitable. State officials guaranteed profits, paid for construction out of public funds (either directly or by promising repayment at the concession's termination), or offered lucrative routes as compensation to induce rail companies to lay track into virgin regions and build branches to connect networks. They also succeeded in standardizing the system; already in 1906 almost 80 percent of the track of federally owned or granted concessions was one-meter gauge and by 1930 nearly 90 percent of all Brazil's track was uniform. In addition to directing where rail could be laid, federal and state officials could prevent rate increases by concessionaires.14 The government's policy was that railroads should serve as tools for economic growth, not merely for revenue. There was social responsibility owed in return for a route monopoly and guaranteed profit or lease. The Great Western's 1920 contract with the union, for instance, stipulated that mail and colonos (colonists) were to receive free transportation and state and federal emergency relief goods were to receive a 50 percent fare reduction, soldiers a 30 percent cut, and all other federally paid fares a 15 percent discount.15

The Railway Network 97 There was an important exception to the state's practice of regulating and directing private rail companies in the prewar years: the federal government maintained control of the Central do Brasil Railroad throughout the First Republic and acquired the Oeste de Minas in 1903. The Central was a very important exception because it was by far the single most important railroad in the country in terms of traffic. During the Republic it hauled almost half of the country's passengers and about a quarter of its freight.16 Not that politicians were completely resigned to federal administration of Brazil's most important transportation company. There were several attempts to lease the Central to private firms. Soon after Deodoro da Fonseca was elected the Republic's first president, in 1891, he put up the Central for lease. In 1896 there was another effort to lease out the line, and in 1924 President Arthur Bernardes supposedly agreed to allow British capitalists to purchase the railway.17 These attempts at divestiture failed despite the offers of private investors. In 1897 the Rothschilds were so interested that President Prudente de Morais claimed that they "want to take it from us by force." In 1924 the São Paulo Railroad sought to purchase the Central.18 However, strong political pressure militated against such a move. The workers on the line served as one of the best guarantees of its continued public status. In 1891, when Deodoro offered the Central for lease, Congress protested, whereupon the president closed down Congress. In reaction to his move, the workers on the Central went on strike, cutting Deodoro off from Rio's rich hinterland, which led to his overthrow. Two years later they unsuccessfully employed the same tactic against Floriano.19 Although the Central's workers would not play so active a part in the political process again, they remained an important threat. In sheer numbers they could not be discounted. Already in 1894, the Central had over fourteen thousand workers, two-thirds the size of the national army; by 1930 there were over twenty-six thousand. These workers adamantly strove to remain in the federal government's employment. They were attracted by special benefits such as Sundays off with pay, vacations, and retirement for salaried employees, which few private companies offered.20 They also feared that private owners would reduce the work force to cut costs. In addition, many workers believed that European-owned firms favored foreigners, thereby limiting Brazilians' possibilities for advancement.21 Thus a visitor observed in the Bulletin of the Bureau of American Republics in 1901 that were the Central to be alienated, its employees "would be a serious menace to the public order."22 This threat continued to loom over railroad policymakers. In 1928 João Pandiá Calógeras, the former minister of agriculture, complained that if the Central were rented out to private investors its workers might immediately declare a general strike, which

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"could provoke a revolution." The politicized and populous capital of Rio would be cut off from its source of food and suburban transportation would be disrupted.23 The most important groups to favor federal administration of the Central were the planters, merchants, industrialists, and miners of the states of Minas Gerais, Rio de Janeiro, and the Federal District. The Mineiros, coming from an economically stagnant area with much more political power than economic assets, could use the advantage in redistributing national resources into Rio through subsidized, deficit-ridden rail lines that charged low rates. The area's main products were essential foodstuffs for the Rio market and minerals such as iron and manganese, none of which could bear a very high freight rate and still be economically viable; therefore, it was difficult to attract private rail companies without offering them considerable government favors. Federal government administration seemed to be the best solution. Although the State of Minas Gerais offered numerous loans to private railways, even buying their stock, only the federal government had the resources to expand the track network adequately into the areas that were less likely to turn immediate commercial profits. Rio State had still fewer resources. The Central's low rates and growing network also pleased the industrialists, merchants, and consumers of Rio city by providing less expensive raw materials and basic necessities while opening the hinterland to Rio's products and imports. The Central's contribution in tying Rio to the surrounding area was underscored by the time reductions it provided. Where it had taken upward of a month to travel from the capital to the city of Barbacena, Minas Gerais, before the Central, afterward one needed only twelve hours.24 Thus almost from the beginning the federal government served a redistributive and developmental role in the influential central-southeastern area through state enterprise. Although frequently it took over private lines because they were facing bankruptcy, on a number of occasions it also bought out profitable companies to control their expansion and connect them to the Central. For example, the federal government purchased the profitable São Paulo and Rio Railroad in 1890 and incorporated it into the Central so that the federal line would extend from the Federal District to the city of São Paulo. And the Muzambinho and Sapucahy in southern Minas Gerais were purchased to extend their lines into the coffee lands between Minas and São Paulo. They provided transportation for this area and a lucrative traffic for the Central, as they would empty into the port of Rio. This was done even though the prosperous Paulista-owned Mogyana Railroad wanted to buy up the lines for the same price paid by the Federal Treasury; it would have carried the area's production to the port of Santos.25

The Railway Network 99 A federal deputy used the same argument to suggest that the Treasury purchase the profitable Juiz da Fora to Piauí Railroad in eastern Minas and incorporate it into the Central's network. If it did not, the British-owned Leopoldina would acquire it and thereby substantially lessen the government's ability to dictate its expansion. In the case of the purchase of the Sabara Railroad in Minas, the federal government acted as an entrepreneur, not simply as buyer of the last resort. President Afonso Pena explained to Congress in 1908 that he was incorporating the line into the Central's system "because the integration will facilitate the linking of this state [Minas Gerais] with [the states of] Bahia and Espírito Santo, and will turn a fertile and important zone into the tributary of it [the Central]." He cautioned that if the line were not tied into the Central, the area would "inevitably be diverted by the Vitória to Diamantina Railroad" (which emptied into the port of Vitória).26 Thus the interests of three states, the Central, and the port of Rio de Janeiro were at stake. There was a growing sentiment that private lines concerned themselves only with short-run commercial profits, not with the development and integration of regional economies. This latter function was the federal government's and was realized principally through the operation of the Central. There was even an aborted plan to extend the Central all the way to Belém at the mouth of the Amazon. A lack of funds prevented the project from being carried out. However, by 1910 the Central did reach the headwaters of one of Brazil's most important arteries, the São Francisco River, and connected Rio by rail with the interior of Minas and by rail and water with the interiors of the northeastern states of Bahia and Pernambuco.27 Thus, even during the apogee of laissez faire the federal government not only administered the most important railway in the country, but extended it. In the 1889-1915 period the Central's network grew 176 percent, principally through federally financed construction (rather than takeovers of defunct lines); this was the same growth rate that the national system as a whole experienced. In the 1915-1930 period the Central would grow 28 percent while the system as a whole grew 22 percent.28 Foreign-Owned Railways Support for public administration of railways grew dramatically after World War I as a result of the increase in foreign-owned rail giants, an economic crisis, and awakened national defense concerns. The federal government's policy of buying out faltering railways and then leasing them to more prosperous companies had led before the war to the concentration of track in a few foreign hands. Although most of the country's important early railroads had been established by Brazilians, after 1900 foreigners' capital

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advantage began to manifest itself. The British Great Western of Brazil grew from a small line of less than a hundred kilometers to a behemoth of over one thousand when it leased six federal roads in 1901. The Leopoldina was taken over by a British company in 1897 and proceeded to lease or purchase numerous smaller lines; by 1912 its system covered more than twenty-four hundred kilometers, 11 percent of Brazil's total.29 But it was the North American-registered Brazil Railroad (BR) that most provoked Brazilian opposition. Founded in 1907 by the North American entrepreneur Percival Farquhar, the company invested an estimated $150 million of French, British, Belgian, and North American capital to create not only the largest railway but the largest private company Brazil had ever known. Through concessions and stock purchases the company came to lease or own at its height in 1915 over ten thousand kilometers of track, or nearly 40 percent of all of the lines in Brazil. The BR consolidated and extended existing lines rather than constructing new ones. Many of the companies taken over were Brazilian and were operating state-owned tracks. Except for the crucial São Paulo Railroad, which connected the plateau of São Paulo with the port of Santos (and which the BR attempted to purchase), the BR virtually monopolized the railroads from São Paulo southward. By 1912 it together with the Leopoldina and the Great Western operated almost 60 percent of Brazil's railroads.30 The Brazil Railroad was rather menacing because of its close ties to powerful international capitalists who controlled resources far greater than any Brazilian competitor's. The corporation counted among its directors and investors the chairman of the board of the Canadian Pacific Railroad and the Canadian Steamship Company; the presidents of the Wisconsin Central, the Minneapolis and St. Louis, and the Georgia Central railroads; the founder of the United Fruit Company and president of railroads in Guatemala, Costa Rica, and Jamaica; the president of the Mexico Light and Power Company; and the presidents of the Banque de Paris and the Banque de Pay Bas in France.31 The BR itself was to be connected into an international network that included major lines in Uruguay, Argentina, Chile, Bolivia, and Paraguay.32 The Brazil Railroad (a conglomerate of thirty-eight subsidiaries) appeared to the Brazilian government too large to control satisfactorily. Some of the largest subsidiaries that made up the BR were dock companies in Brazil's largest ports, a large lumber company, a paper mill, enormous tracts of land in Mato Grosso and Pará, Brazil's first modern packing house, the Bahia Tramway, Light, and Power Company, and the only major steamship fleet to travel the Amazon.33 The Brazil Railroad also shared directors with the second- and third-largest foreign-owned railroads in Brazil. A. H. A. Knox-Little, in addition to directing the BR, was at the same time the managing director of both the

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Leopoldina and the Great Western railroads. The BR also shared directors with the Brazilian Traction Company, the country's largest public utility, and one of the directors of the Traction Company was also president of the important Noroeste Rail Company. This interrelationship of Brazil's largest companies—all foreign owned—led one of the most outspoken critics of the BR, Alberto de Faria, to declare that Brazilian trusts were much more dangerous than the American Tobacco Company or the Standard Oil Company because "in Brazil we don't have trusts; it is worse than that, we have One Trust."34 Nationalist hostility focused on the BR because it came to symbolize foreign presence in Brazil. In the years between 1908 and 1913, an estimated $883 million of foreign capital poured into Brazil.35 It is not surprising that an antitrust campaign erupted in 1912. The effect of the U.S. Progressives and trust busting had made an impact on the most articulate of Brazil's muckrakers; more important, the internal situation in Brazil fanned antitrust sentiment. The establishment and expansion in a fifteen-year period of such foreign economic giants as the Brazil Railroad, Brazilian Traction, the Leopoldina Railroad, the Great Western Railroad, and the Brazilian Warrant coffee conglomerate, brought a storm of hostility.36 The threat presented by the foreign-owned, vertically and horizontally integrated conglomerate manifested itself in the state of Paraná. The state's government, the Centro de Indústrias de Madeira de Paraná, and the Centro de Indústrias de São Paulo complained in 1918 that the BR was diverting railcars from the Curitiba-Paranagua route to other railways and reserving the flatcars on the Paranagua line for its own lumber mills. Consequently, five thousand lumber workers stood to lose their jobs and factories in São Paulo were starved for wood.37 The foreign menace was defined not only in terms of control of the economy but more broadly in terms of national defense. The years prior to World War I saw the major powers of Europe race to divide up colonies in Africa, China, and Indochina, and the United States to fill its selfproclaimed role as "policeman of the Caribbean." Tensions in Europe escalated by the Balkan Wars further heightened Brazilian awareness of the possibility of invasion and the need to bolster the nation's defensive ability. World War I The nationalist sentiment that had surfaced around 1912 flourished with the outbreak of World War I. The patriotic fervor aroused by the war fostered civic organizations desiring to strengthen and reform Brazil. Cut off from European investors, markets, and producers, the Brazilian economy lacked vital inputs and the military suffered a shortage of armaments. Isolation brought a growing sense of the necessity for self-sufficiency. The

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state became less hospitable to foreign capital. A British consul complained after the war that "Brazil's public officials do not look kindly on foreign enterprises and therefore a number have disappeared because of the harm done them."38 Rodrigues Alves demonstrated the growing antipathy in official circles to the giant foreign rail companies. An important planter and industrialist, he had long favored a minimum of public economic intervention. Nonetheless, he noted in his 1915 message to the São Paulo legislature, "I am not sympathetic to the idea of organizing trusts [original emphasis] to exploit these services [railroads]. If there is a need to unify [the lines], I prefer that it be done under the supervision and responsibility of the state."39 His successor as governor, Altino Arantes, concurred. Arantes argued the next year that, because private companies insisted on charging high freight rates to the detriment of local planters, "[state] takeovers of our principal railways appeared the only recourse."40 Far from being socialists, these men advocated state railway intervention to protect planters by lowering rates. The state government was only able to lower tariffs on its own lines; on private concessions or leased lines, it merely controlled the increases. It was not a question of state rescues of moribund railways because of the absence of interested capitalists. The state should aggressively wrest them away from the "trusts," which were the only private concerns with the resources to ensure the continued functioning of the railroads. Complaints of high freight rates had long echoed in the halls of Congress. The economic crisis starting in 1912 amplified planters' dissatisfaction. Between 1912 and 1918 the average export price of agricultural products dropped 28 percent in milréis terms while the cost of living grew an estimated 50 percent.41 Urban consumers also denounced high rates. Increases in transport tariffs frequently incited street revolts even in less volatile times. The dramatic inflation during the war and the demonstration effect of the Russian Revolution provoked massive strikes between 1917 and 1920, which further increased the pressure against foreign lines.42 At precisely the time that planters and consumers most needed a reduction in rail tariffs, trains were undergoing a crisis of their own. Because of the reduction of international trade, real revenues fell. In addition, costs skyrocketed, in some cases 300 percent, for coal, rolling stock, and building materials, almost all of which were imported. As a result, railway expenses mounted much faster than income. Whereas expenditures equaled only 82 percent of revenues in 1912, by 1919 they were 98 percent. Even the normally prosperous São Paulo Railroad saw its stock quotation fall by twothirds.43 To exacerbate matters, the Federal Treasury suspended profitguarantee payments because of financial difficulties; European financial markets were also closed because of the war. (North American capitalists

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had never provided much railroad capital.)44 Many railroads limped out of World War I badly crippled. The rapid decline of the milréis after the war hurt foreign-owned lines further, as imports became more expensive and profit remuneration more difficult. The conflict of increased interest between rail companies and customers led to government intervention after the war. Public ownership of Brazil's railroads grew slightly from 1914 to 1930. More important, the federal and state bureaucracies came to administer 52 percent of the network in 1930, a vast expansion over the 20 percent they operated in 1914 (see table 8). Public trains' percentage of passengers carried also rose from 56 percent in 1915 to 66 percent in 1930 and their share of cargo grew by 50 percent (see table 9). The opposition by Brazil's leaders to measures deemed necessary by the directors of private companies seems to have dissuaded foreign capitalists from initiating new rail companies in Brazil after World War I. The complete halt of new authorizations of foreign railroad corporations after 1918 probably resulted in part from federal officials' new perception of the need for direct state participation in railroads. Since foreign capital poured into other sectors of the Brazilian economy after the war, railroads appear to have been a special case. A changing investment profile probably also was partly responsible for the decline of foreign railroads. All over Latin America, not just in Brazil, foreign capitalists began investing in industries and public utility companies after the war, rather than in railroads, because of the higher profitability of the former.45 The demise of the Brazil Railroad was the major contribution to the nationalization of Brazil's railroads. As the largest recipient of guarantee payments, the BR suffered most when the federal government could not meet its obligations during World War I.46 It was already foundering by 1914 and went into receivership in 1915. The Farquhar Company had suffered from bad timing and overexpansion. Farquhar set out to establish a Table 8. Ownership and Operation of Brazil's Railroads, by Economic Sector Sector

Federal government State governments Private companies

% of Total Owned 1889 1914 1930

34 66

53 8 39

59 9 31

% of Total Operated 1889 1914 1930

34 66

18 2 80

Source: Duncan, Public and Private Operation, p. 87. Notes: Totals may not add to 100 because of rounding. *Many of the lines that the states operated belonged to the union.

29 23* 48

Table 9. Traffic Carried by State and Private Railroads (percentages) Administration 1906*

Federal State Private Total

67.4 0.0 32.6 100.0

1915*

56.4 0.0 43.6 100.0

Passengers 1920 1925

50.3 9.8 39.9 100.0

51.0 14.2 34.8 100.0

1930

53.2 13.2 33.6 100.0

1906*

38.2 0.0 61.7 100.0

1915*

34.4 0.0 65.6 100.0

Cargo 1920

36.7 14.0 49.3 100.0

1925

29.9 22.7 47.4 100.0

1930

30.2 26.3 43.5 100.0

Source: Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatística das estradas de ferro do Brasil, 1906, 1915,1920,1925,1930-1931, passim. *Data include only federal concessions. Because state concessions were exclusively operated by private companies in these years, the figures underestimate private participation.

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vast interconnecting and reinforcing empire of companies, many of which required substantial capital infusion and gestation periods before becoming profitable. To put together the enterprises so they could vertically integrate and to take advantage of the booming French and Belgian capital markets before the war, Farquhar had attacked on all fronts at once. He capitalized the Brazil Railroad at a higher level than the company's earning capacity warranted so that he could invest some of the capital in subsidiaries, such as the Southern Brazil Land and Colonization Company, which would provide business for the BR. The BR experienced increasing difficulty in meeting interest payments because many investments proved slow to generate profits. The receiver of the bankrupt company told the French bondholders in 1916 that if they "wanted to make a little practical demonstration of the working of all of these interior interrelated securities and holding companies on the Brazil Railroad they could each of them take a handful of sand and, opening their watches, pour the sand into the works and see what beneficial results it would have on the functioning of the watch.47 The French and British bankers who took control of the Brazil Railroad reorganized the company and divested it of weak subsidiaries. By the end of the First Republic the federal government was operating the MadeiraMamoré line in Amazônia, and the state administrations in Rio Grande do Sul and São Paulo were running the Viação Férrea do Rio Grande do Sul and the Sorocabana, respectively. Together the three systems covered approximately forty-three hundred kilometers, or about 40 percent of the rail controlled by the BR and 15 percent of the country's tracks.48 In addition, the BR relinquished control of the Paulista and Mogyana railroads. State Participation An important result of the dismantling of the Brazil Railroad was the growth of provincial rail administration. As table 6 demonstrates, after the war the states increased their participation in the operation of railroads. This apparent decentralization was a bit ambiguous, however. In terms of control and ownership, the federal government increased its role more rapidly than did the states. Whereas 35 percent of all concessions in 1908 had been issued by the states, by 1930 their share had fallen to 23 percent.49 Thus the Federal Inspectorate of Roads widened the scope of its authority. Whereas states expanded the kilometers of track they owned by about 40 percent between the end of the war and the end of the republic, the federal government enlarged its network by 92 percent in the same period.50 Moreover, only a restricted number of states had the financial resources and the political influence to participate in the administration of railroads. Only in the prosperous Southeast, in particular the states of São Paulo, Rio de Janeiro, and Minas Gerais, which enjoyed the majority of the country's

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rail, were many concessions offered by the states. This was also the only region in which the states administered a sizable amount of track. The federal government had long been interested in putting the burden of operating unprofitable lines on the shoulders of the states. President Prudente de Morais had expressed such a wish in 1896.51 But almost no state had the funds to assert its prerogative prior to World War I. The states were in a much better position by 1920, when the financial difficulties of most private railways made them vulnerable to nationalization; the states' real per capita revenue more than tripled between the days of Prudente and 1920.52 São Paulo was the only state in the union to purchase an important train company during the First Republic. Significantly, the state that attracted the greatest volume of foreign immigrants and investment and that had the strongest ties to the world economy also proved the most assertive in controlling its own infrastructure. São Paulo's government bought the Sorocabana Railroad from the federal government in 1905 after the union had nationalized the debt-ridden company. At first, state politicians wanted to run the twelve hundred kilometers of track to guarantee cheap and reliable transportation to rich coffee lands. As mentioned, it soon became financially more lucrative to lease out the line to the Brazil Railroad in return for funds for their valorization program.53 In 1920 the state bought back the lease and the improvements from the ailing BR. Because the BR had previously watered the stock of the Sorocabana, the latter was unable to meet its dividend and debenture payments, even though expenses ran only 80 percent of revenues even in its worst year. According to one intriguing, though biased, account, São Paulo's Treasury bought the company for fifty-three thousand contos, when it was actually worth only five thousand contos, to benefit an influential stockholder.54 In any case, the state legislature decided to maintain the Sorocabana under public control for the rest of the First Republic, despite private attempts at purchase. Paulista officials used the Sorocabana as a tool for economic development, much as federal politicians employed the Central. The railway was expanded to the port of Santos at a cost to the public of approximately $11,200,000 to end the English-owned São Paulo Railway's monopoly of the route connecting the port with the interior. The extension only began operation in 1937.55 In 1919 the state had purchased the São Paulo Northern, also known as the Araraquara. State officials argued that the American company was providing bad service and abusing the rail and rolling stock that had been purchased from a Brazilian company only three years earlier. The corporation's president responded that the transportation difficulties were short term and would end once wartime conditions ceased. The state's

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takeover was certainly not a rescue operation, for the company did not want to be rescued. The Northern's president believed that the expropriation was undertaken for political reasons.56 Clearly, there was sentiment for the state's rail infrastructure to be in public or native hands. Even in the most prosperous state in the union, onethird of the track came to belong to the state government and about 45 percent was publicly owned. Paulistas controlled 85 percent of the state's railways by 1930; adding the federal government's share, Brazilians held 97 percent of the network. The state was not simply filling a void that private capital had neglected. The Noroeste and Araraquara passed through the state's most fertile coffee lands so that over half of São Paulo's coffee was carried on state-owned railways by the end of the period.57 The government of the state of Minas Gerais actively encouraged the growth of its transportation system through guarantees, loans, and occasional stock purchases, but before it leased the Sul Mineira in 1920 it had never owned or operated any significant lines. The central government had always provided the funds for trains through the federally owned Central and the Oeste de Minas. The Sul Mineira had been projected as a state operation since 1903, when the federal government began to put it together by expropriating three private lines. When the line was finally pieced together in 1910, it was leased to a private company.58 The State of Minas did not have the funds to take it over. The state came to control the Sul Mineira in 1920 because the union had to buy out the lease from the private company to protect public interest when the corporation declared bankruptcy. As the railroad's largest creditor, the federal government moved to prevent a group of French debenture holders from making good on their threat to take over the road.59 The leasing of the Sul Mineira was part of a plan by the governor of Minas and future president, Arthur Bernardes, to expand the state's transportation system. Under Bernardes the state purchased the 153-kilometer Paracatú Railroad. His successor, Raúl Soares, ordered the first systematic rail plan in the state's history and invested substantial sums in its trains, particularly the Sul Mineira. The decade of the 1920s saw 40 percent of all federal rail construction done in Minas, largely because Bernardes was president for four of those years. At the end of the Republic, 70 percent of Minas's rail system belonged to the federal government, but much of it was administered by the state government.60 In Rio Grande do Sul the state government had not become involved in railways, even though it had been fairly active in the economy and in constructing sectors of the transportation infrastructure, such as ports and canals. Until the state leased the Viação Férrea Rio Grande do Sul in 1920, the state owned no sizable rail system and gave almost no concessions. Instead, the vast majority of its lines belonged to the federal government.

108 The Railway Network When the Brazil Railroad fell into financial difficulty and sold its lease and improvements to the union, state leaders decided to assert their control over the railway. As a result, they took over 80 percent of the state's rail and invested by 1930 more than $15 million in the network.61 By the end of the First Republic, the federal and state governments had come to play a dominant role in the rail sector. Rather than simply attracting private capital, as the liberal regime had done in the 1890s, the state became entrepreneurial. Before World War I the only important lines that the federal government operated were the Central and the Oeste de Minas. Political pressure assured that they would remain public. During and after the war the union took control of a number of additional railroads. The Rede Cearense consisted of 1,250 kilometers in the northeastern states of Ceará and Piauí. The São Luiz-Terezinha linked Piauí and Maranhão with 450 kilometers of rail. In Goiás they had 360 kilometers reaching into Minas. The Noroeste's 1,270 kilometers ran from São Paulo through Mato Grosso to the border of Paraguay.62 These lines dropped into the hands of the federal government usually because the concession holder encountered financial problems. But that does not mean that the federal government was simply protecting private capital. The E.F. de Goyaz, for example, was nationalized because it was providing bad service. Moreover, these lines, except the Noroeste (which ran through booming coffee country), were important for strategic reasons and for the development of domestic markets and production in remote areas with little export potential. If government officials had been really convinced of the necessity of private operation of the trains, they would have offered greater incentives and raised freight rates. Instead, guarantees fell from about 50 percent of all federally conceded track in 1900 to 14 percent in 1915 to 6 percent in 1930. In monetary terms, they decreased from 1,600,00 pounds in 1898 to 960,000 pounds in 1915 and to 715,000 pounds in 1929.63 Rail rates also did not increase sufficiently. Few rail companies in the country were turning a respectable profit in the 1920s. For the system as a whole, expenses ran 90 percent of revenues for the 1916-1930 period.64 The Performance of Public Railroads Public administration of railroads continued to be loudly attacked throughout the First Republic by influential members of Congress and civil society. João Pandiá Calógeras argued that although he supported state ownership, the lines should be leased out to private corporations.65 The Commercial Association of São Paulo echoed his sentiments in 1927, when it called for the "disofficialization" of public trains—including the Central. It did not want the routes offered to private concerns, especially not foreign ones, but it did want to depoliticize them by turning them into autarquias, or

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state-owned corporations that would be allowed the independence to perform as if private.66 These opinions reflected the popular conception of public administration: it drained the Treasury because it was inefficient and poorly administered. At base the problem was allegedly that federal and state railroads used political rather than economic criteria. Consequently, the publicly administered system employed too many people and ran unprofitable routes.67 It is true that federal lines tended to run deficits. Although the Central usually proved profitable in its first fifty-four years, after 1909 it was always in the red, except for a small surplus in 1929. After 1909 its costs ran 127 percent of receipts. As a result, all federal lines combined recorded deficits for those years. Taken individually, however, state-run railways did not always operate at a loss. The Oeste de Minas continued to make a profit for fourteen years after its nationalization and by the end of the period the Goyaz Railway showed surpluses. The states were even more concerned about running profitable state enterprises: the Sorocabana was in the black the whole period and even improved its coefficient of costs-to-receipts from 91 percent in its last year of private operation to 68 percent in 1928. São Paulo also turned around the São Paulo Northern from a heavy loser into an impressive earner. The Minas-leased Sul Mineira also recorded gains from 1920 to 1924 and finally ran in the black in 1929, and the V.F. Rio Grande do Sul, a line with deficits when the state took over its lease, was a small profit earner after 68 1927.

Even granting the assertion that state-administered railroads as a whole tended to run deficits after the war, one must still determine whether the losses resulted from technical incompetence and political machinations, or reflected a developmental, redistributional policy. The Central do Brasil, responsible for a minimum 75 percent of all federal rail revenues, offers an important case for study. Positions on the line at the Central were certainly more than simply political sinecures. With few exceptions, the Central's presidents were trained engineers with railroad experience. Most had previously worked for the Central.69 The presidency was more a technical than a political appointment. The failure of the Central to report statistics to the Federal Inspectorate of Roads, which almost all private lines did, suggests a degree of independence from other government agencies. Moreover, the threat posed by a strike of the Central's workers and their political influence in the Federal District, where the railworkers had the ears of progressive senator Irineu Machado (a former employee of the Central) and deputies Maurício de Lacerda and Nicanor Nascimento, gave the Central additional leverage.70 Nonetheless, the ministers of finance and transportation and the

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Congress made all of the major decisions. However, most of the transportation ministers were trained engineers and were also as much technical as political leaders. They exercised substantial weight in railroad policy formulation, interjecting economic considerations.71 Congress, on the other hand, more frequently based its decisions on political criteria. This was critical because the Central could not acquire funds internally or abroad for expansion without congressional approval; thus it was at the beck and call of the legislature. Congress often chose routes based on the needs of the ruling class, rather than on more global social benefits, although there were a few examples where the Treasury expropriated private railways to increase the Central's traffic. If the Central was more than simply a marionette set to dancing by various interest groups, employment on the line, as well as on other state lines, certainly served political purposes. Hélio Jaguaribe, in reference to the "cartorial state," argues that the state had a bloated bureaucracy to buy off sectors of the petite bourgeoisie that would otherwise be discontent with the shortage of opportunities for advancement.72 Such a mechanism would seem particularly attractive to the rigid oligarchical republican state. Certainly, employment on the railways greatly expanded government "pork barrel" resources, though the great majority of positions were blue collar. The forty thousand jobs on federal and state-owned railroads in 1920 equaled about 15 percent of all public positions and over one-quarter of all civilian public posts. By 1930 state railroads provided almost seventy thousand jobs.73 In some states, such as São Paulo, Minas Gerais, and Rio Grande do Sul, the railway positions more than doubled the vacancies available in the government. This employment was often used to gain political favor. The employees on the V.F. Rio Grande do Sul served as a gold mine for the state Republican party, which made a concerted effort to register them to vote. About sixty-seven hundred of them were registered. The progovernment vote of the railroad's employees constituted 5 percent of the electorate in the 1928 election and 10 percent of a majority. If one adds in family or friends who might be influenced by these men (women could not vote), this was a substantial political force.74 That railroad positions were used for political purposes does not necessarily imply that state lines overemployed, though there were those who felt they did. For example, a member of the Congressional Committee on Transportation argued that the Central was guilty of an excessive payroll. He compared the Central with the Leopoldina, as both ran from Rio City through Rio State and Minas Gerais. Where the Central's receipts were a healthy nineteen contos per kilometer, the Leopoldina realized less than eight; nevertheless, the Leopoldina's expenditures reached only 65 percent of revenues, whereas the Central's soared to 129 percent. The difference obviously was that the Central's costs were among the highest in the

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country. The deputy concluded that the problem was not low freight and passenger rates, as the line did have such a healthy revenue, but rather overemployment, which he attributed to "state socialism."75 This method of calculating costs was prevalent during the period; the Department of Statistics used the same figure. It misrepresents true costs and revenue, however. A more realistic way to measure performance is to divide costs and receipts by units of traffic—either passenger-kilometers or ton-kilometers. Clearly, one's expenses are more proportional to the intensity of traffic than to the extent of track. Table 10 demonstrates that, when this calculation is made, federal railroads were in fact more efficient than private ones; that is, they used less manpower per unit. This was particularly true for the Central, which, as stated before, carried a disproportionately large share of the country's traffic. The Central had more employees per kilometer than most private lines because it operated suburban service in the northern zone of Rio de Janeiro. This accounted for more than one-half of its passengers and required a large number of employees to run and service it.76 Besides, the number of employees per kilometer alone was not a useful criterion; the country's most profitable railroad, the São Paulo, which connected the city of São Paulo with its port at Santos, also had the highest number of employees per kilometer in the country.77 Moreover, only 5 percent of the Central's expenses went to administration, one of the lowest percentages in the country. Over 95 percent of the employees worked in a more directly productive capacity. The issue of whether federal railroads overpaid their employees is complicated. Whereas the Central paid the highest wages of all, the federally owned Cearense paid the lowest and the Oeste was among the lowest. The Central's extraordinarily high pay reflected, as already discussed, the political influence of its workers. Ten percent of the Central's labor costs derived from paid Sundays and holidays. Private lines tended to pay workers less but the most efficient and successful of them all, the São Paulo Railroad, offered salaries comparable to those of the Central.78 It would be difficult to argue that public enterprises paid significantly higher wages than did private ones. The Central's generous remuneration, cited as a reason for the deficits of the state-run system as a whole, was contradicted by the fact that the São Paulo line was able to prosper while offering similar sums. Salaries alone were not the culprit. High costs, particularly during World War I, certainly played a large role in creating deficits. Almost half of the working loss of the Central in 1924, for instance, was due to the increase in the price of imported coal.79 But all railways faced these same charges. Most of the Central's losses were attributable to the low rates it charged, its unprofitable routes, and the special services it performed for the federal

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The Railway Network Table 10. Two Measurements of Railroad Productivity, 1907-1930 (no. of employees per unit of track and traffic)

Year/Administration 1907

1910

1915

1920

1925

1930

Employees/Km

Employees/ Passenger/

Km

Employees/ Ton/Km

Federally administered All others

4.6 2.2

.028 .116

.040 .049

Federally administered All others

5.7 3.1

.030 .078

.046 .050

Federally administered All others

4.7 3.1

.027 .045

.045 .030

Federally administered All others

3.8 3.7

.027 .048

.036 .036

Federally administered All others

*

Federally administered All others

4.4 3.9

.018 .065

.037 .054

Source: Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatística das estradas de ferro do Brasil, 1907, 1910, 1915, 1920, 1930, passim. *The Central do Brasil provided no data on the number of employees in 1925, so calculations are impossible.

government As table 11 demonstrates, it exacted less than half the tariff demanded by other lines. Its low rates served as a subsidy to the miners and food producers of the three southeastern states it crossed. The low passenger price acted as a direct subsidy to the suburban population of Rio de Janeiro and an indirect one to employers. As President Nilo Peçanha explained, "In order to develop the suburban zone and facilitate transportation for the dense population of workers who live there, the fares were reduced on the

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Table 11. Rail Fares, State and Private Railways (reis)

Year

Central

Average Income Administered Leased by by State Union

1907

Others

Per passenger per km. 25 Ton of cargo per km. 63

-

29 83

59 a 149a

Per passenger per km. 18 Ton of cargo per km. 37

-

26 68

42 a 119a

Per passenger per km. 24 Ton of cargo per km. 56

-

44 91

36 a 115a

59 113

44 106

1910

1915

1920 Per passenger per km. 27 Ton of cargo per km. 78 1925 Per passenger per km. 23 Ton of cargo per km. 69

51 112

66 b 136b

64 165

Per passenger per km. 24 Ton of cargo per km. 84

52 116

65 b 181b

46 180

1930

Source: Calculated from Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatística das estradas de ferro do Brasil, 1907,1910,1915,1920, 1925,1930, passim. a 1907-1915 includes only federally granted private concessions. After 1920, includes state-granted ones also "Includes state-administered federal lines such as the Sul Mineira and the V.F. Rio Grande do Sul

trains that serve them [the Central]."80 The low rates were usually legislated by the federal government as incentive to mining, dairy farming, and agriculture. Because Congress could only suggest (usually unsuccessfully) tariff reductions to private lines, it generally used its own trains to lower costs and pressure its private

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competitors, particularly the Leopoldina. A federal attempt to encourage iron exports, for example, cost the Central 6,000 contos (approximately $1,400,000) because it stipulated special tariff reductions.81 Brazil's major railroad journal observed in 1923 that the government had long held a policy that "imposed on all railroad companies minimally low rates to aid agriculture."82 In addition to offering special fares, federal railways provided far more free service than their private counterparts. The lines carried cargo for the government and for colonization projects free of charge. As much as 18 percent of the total freight traveled for free, whereas private trains extended the privilege to less than 3 percent of their cargo.83 The routes covered by federal lines also contributed to deficits. Because many lines were incorporated into the federal system as a result of financial crises, the selection process tended to give the union the weaker lines. (In this it differed from the government of São Paulo.)84 Moreover, the developmental roads connecting the coast with the interior most often were operated by the federal government; these routes required long gestation periods and generally showed losses. Clearly, federal and state railroads were not as incompetently operated as critics maintained. But were they efficient? Economists view profitability as the standard of efficiency. By that measure the railroads operated by the states were efficient. As has been shown, the lines of Minas Gerais, Rio Grande do Sul, and São Paulo showed profits by the end of the Republic. When the North American Julian Duncan researched the Rede Sul Mineira in the Republic's last years, he concluded that it was more efficient and better operated under state administration than it had been under private guidance. Flávio Azevedo Marques de Saes's study of São Paulo's railroads concluded that the Sorocabana was not operated inefficiently by the state. The states strove to maintain their railways in good order; in the 1920s they invested 365,000 contos (roughly $75 million) to that end. The profits, however, resulted from the rate increases enacted shortly after taking them over. Ironically, the lines had been nationalized in good part because the federal government had refused to allow private owners tariff increases.85 To argue that federal railroads were inefficient because of net losses (albeit with some profitable lines) was really to condemn them for subsidies they provided users. As already demonstrated, losses stemmed from the low fares charged, free services rendered such as aid to colonists, and the unprofitable routes maintained either to encourage expansion into marginal areas, for strategic purposes, or as rescues of faltering lines. Given the longrun developmental goals of some federal rail policies, looking at short-run returns is not a valid means of evaluation. By other criteria federal railways fared better. The Central's operating expenses compared to the major railroads in the country were favorable, as

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table 12 demonstrates. Cargo and passenger traffic expenses were lower than on the majority of private and provincially run lines. Another component of efficiency was the quality of equipment employed. This is problematic, however, because of the difficulty in obtaining sufficient comparative data. All lines converted to steel track early on and constructed 90 percent of the track a uniform one-meter gauge. In 1921 the federal government contracted a twenty-five million dollar loan to electrify the Central. This would have been the first large-scale project of its kind in Brazil, but the funds were diverted to other uses and the project was deferred to the Vargas era. Many of the Central's locomotives were antiquated; only 22 percent were less than ten years old. This could, of course, be a testimony to the ability of the Central's repair shops rather than an indictment of its material. It seems that the Central's service had deteriorated since the 1880s, when the Dutch observer D. F. van Delden Laerne praised Rio's suburban train system as "admirably managed... such as perhaps could not be met with anywhere else."86 By the turn of the century, the minister of transportation was complaining of the lack of rail cars and the consequent crowding, a problem that persists. But despite the fact that the Central had consistently the second most intensive use of rolling stock in the country, complaints about its service were less common than those directed at its privately owned competitors, the Leopoldina and Rio Light's trams. Another criterion of the efficiency of state railroads was their ability to fulfill goals. Did they generate or sustain economic activity, stimulate the settlement of new areas, and create and integrate markets to compensate for the more than one billion dollars of federal funds invested in them?87 Railroads clearly played a central part in promoting the growth of exports. Three geographers have noted that in underdeveloped countries railroads generally began by connecting ports to the interior either to tap agricultural exports and minerals, or for political and defense purposes. In Brazil the first lines snaked inland from Rio, Recife, and Santos to reach preexisting export areas. The federally owned Central was the principal carrier of coffee well into the 1880s, as it serviced the Paraíba Valley. The railroad encouraged the dynamic growth of coffee by promoting large plantations that could produce the crop cheaply because of economies of scale such as private rail spurs and hence furnish and stimulate world demand. Railways also allowed fazendeiros to employ predatory agricultural techniques to keep down the wage bill, because now they could move to new lands opened up by the railroad. In São Paulo the railroad did not greatly decrease freight costs until one went west of Rio Claro. But exploitation of that vast, rich area would have been economically unfeasible without the railroad. The concentration of land was higher in the newer, more fertile lands. Thus part of public railroads' legacy was to stimulate the export economy, concentrate landholding, and create a hollow frontier. Whereas the Central's prominence

Table 12. Expenses of Selected Railway Lines, 1906-1930 (reis) Railroad

1906

1910

Expenses 1915 1920

Central Passenger/km Ton of cargo/km.

25 54

22 47

30 65

37 75

-

124

Great Western Passenger/km. Ton of cargo/km.

32 89

27 72

35 77

37 131

64 169

91 185

Oeste de Minas 57 Passenger/km. Ton of cargo/km. 133

-

59 79

76 212

103 181

::

V.F. Rio Grande do Sul 24 Passenger/km. Ton of cargo/km. 51

20 49

24 44

51 80

62 123

57 166

Leopoldina 222 Passenger/km. Ton of cargo/km. 310

177 190

60 116

63 202

34 126

39 156

1925

1930

São Paulo Railroad Passenger/km. Ton of cargo/km

57 63

38 75

54

54 100

52 137

46 141

Sorocabana Passenger/km. Ton of cargo/km.

-

31 73

33 57

27 53

45 87

50 82

Mogyana Passenger/km. Ton of cargo/km.

41 90

32 84

24 91

55 72

48 108

61 115

122 50

41

-53 164

38 81

45 78

Paulista Passenger/km. Ton of cargo/km. São Paulo-Rio Grande do Sul 62 Passenger/km. Ton of cargo/km. 183

41 54 96

37 105

Source: Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatística de ferro do Brasil, 1906,1910, 1915, 1920, 1925, 1930, passim. Note: - means no information.

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as a coffee carrier was already in eclipse before the dawn of the Republic, the federal Noroeste and São Paulo State's Sorocabana and Araraquara were leading the charge into new lands in the 1920s.88 Moreover, many private lines were built to carry exports because of federal and state profit guarantees. Although the railroad's first master in Brazil was the exporter, trains soon came to aid the expansion of the internal economy. For geographic and historical reasons, the railways in Brazil did not create the serious damage to the population of the interior that they did, for instance, in Mexico. In Mexico native artisans and small factories were undercut by imports, indigenous communities lost their land, and agricultural production was diverted from the internal market to exports, thereby creating severe shortages.89 In Brazil most of the land in the interior had not yet been settled. The indigenous population was much sparser and less sedentary, and the colonial era had given rise to few population centers in the interior, except in Minas Gerais. Not that the railroad was benign in Brazil. Certainly many caipiras found themselves robbed by fazendeiros of the now-valuable land on which they squatted, and the Tupi were forced into ever more marginal lands. But the dimension of the disruption was far less than in other Latin American countries. Indeed, not only did Brazil's railways do relatively little damage to domestic producers, they created internal markets. Railhead towns in the interior became cities as they were able to reach into their expanded hinterland and trade with the no longer self-sufficient plantations. Both in Vassouras and Rio Claro planters now looked to the metropolis, Rio and São Paulo. The three principal cities of the planalto, São Paulo, Belo Horizonte, and Curitiba, had a combined population in 1872 of 44,000 (Belo Horizonte did not yet even exist). By 1930 their population had risen to 1,107,500. They grew nearly nine times faster than the country as a whole.90 At the same time, the interior was drawn increasingly into the money economy, and with the abolition of slavery and improved transportation, the lands once dedicated to coffee diversified. In Rio State and Minas Gerais and even in São Paulo, farmers produced increasingly for the booming urban markets. Sugar growers from the Northeast also turned to the domestic market, though they reached it by sea rather than by rail. The cattlemen, lumberjacks, and rice farmers of the South had long sold the bulk of their goods at home. The dense rail network in the country's Center and South intensified domestic commerce. It is true that Brazil's rail system was not as nationally integrated as the Argentine, Mexican, or Uruguayan systems, as the North and Northeast were isolated from the rest of the country. In terms of kilometers of rail per capita in 1912 (the height of railroad construction in the country), Brazil's total of 915 kilometers per ten thousand inhabitants was about one-fifth of

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Argentina's total, one-sixth of Canada's, one-third of Chile's, one-half of Mexico's, and one-tenth of the United States's. Brazil's ranking was similar in terms of rail per square kilometer of territory.91 Nonetheless, the most prosperous and populous areas of the country were well endowed with rail (see fig. 3). The system connected Espírito Santo in the north with Rio State, the Federal District, Minas Gerais, and Goiás on the west as well as with São Paulo, Mato Grosso, and all the way south to the Uruguayan border. This spurred agricultural growth. The expansion of domestic agriculture had numerous salutary effects: agriculture's elasticity increased, lowering inflationary pressures; the economic multiplier effect expanded over a wider area; food and raw materials for the cities became relatively cheaper; and the market for manufactures and agricultural goods grew.92 The railroad's importance for internal production was underlined by the fact that in 1910 only 20 percent of all cargo transported nationally was for export; by 1920 exports fell to 11 percent. Nor were imports the major rail user. Brazil's imports generally weighed one and a half to three times as much as its exports, but participation in rail traffic was not nearly as great, as the great majority of imports either remained in the giant port cities such as Rio, Bahia, Recife, Porto Alegre, or in the planalto cities of São Paulo, Belo Horizonte, and Curitiba (as late as 1929, three-quarters of the imports were foodstuffs and raw materials, which were unlikely to go to the interior). Most imports traveled on no railroad or only on one line, whereas exports that came from the interior tended to travel on as many as three railways and hence were counted three times in cargo data. It is unlikely that imports exceeded 20 percent of all cargo. Therefore, it can be estimated that by the end of the Republic perhaps as much as two-thirds of all rail traffic was not connected to international commerce. In contrast, John Coatsworth has calculated that in 1910 in Mexico, 53 percent of all rail commerce was exports alone.93 Public railroads in Brazil served the export sector even less than did private lines. In 1920 the union's railroads carried 37 percent of all traffic but under 5 percent of the coffee. The states' railways, on the other hand, carried 44 percent of all coffee. This was due to the inclusion of São Paulo's public railroads in the calculation. But even in São Paulo, well under onehalf of the traffic on its lines involved coffee. Between 1890 and 1930, total cargo per kilometer of track laid in the state jumped 177 percent while coffee exports per kilometer grew a mere 10 percent.94 Fostering the growth of the internal economy was not the state's initial motivation for building railroads. Almost all of the first major trunk lines in the Center and Northeast were laid to tap export areas. The union or states took them over and they began serving internal commerce once the land became unsuitable for exports and domestic markets grew. The exceptions

Fig. 3. Brazil's Railways in 1930 Source: Julian Smith Duncan, Public and Private Operation of Railways in Brazil (New York: Faculty of Political Science, Columbia University, 1932), p. 2 Note: These are the largest Class 1 railways, which entailed two-thirds of Brazil's rail network. Key: 1. Great Western ofBrazil Railway Co. Ltd. 7. Comp. Mogyana de E. de Ferro 2. C. F. E'ste Brazileiro 8. E.F. Sorocabana 3. E.F. Central do Brazil 9. E.F. Noroeste do Brazil 4. Leopoldina Railway Co. Ltd. 10. Comp. E.F. São Paulo-Rio Grande 5. São Paulo Railway Co. Ltd. 11. Viação Férrea do Rio Grande do Sul 6. Comp. Paulista de E. de Ferro

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were the routes to the South and West intended to tie together internal producers for economic and strategic purposes. Although exports were the privileged customer on most railways, internal commodities did not expand only by default. The railroads encouraged production for the internal market by charging freight rates proportional to the distance traveled rather than by giving rebates to long-distance haulers. As exports tended to be produced farther from the coast, this policy put them at a disadvantage in terms of transport costs. The federal government had already begun in 1889 lowering rail rates for foodstuffs on the Central and in 1899 implemented a general policy to encourage railways to lower rates on goods of "prime necessity." This served the dual purpose of subsidizing the struggling planters of the Paraíba Valley, who had diversified, and of keeping down the cost of living to appease city dwellers and reduce urban labor costs.95 Thus the state's policies formed a railroad system with important forward linkages for export and domestic agriculture as well as for manufacturing. Railroads have often been instrumental in developing basic industries through their backward linkages. Walt Rostow attributes the United States's takeoff in the 1840s to railroads' ripple effects. Although this perspective has undergone revisionist criticism, in some "backward" countries, such as in nineteenth-century Russia and Japan, it does appear that the state's guidance of railroad expansion had profound effects on basic industries.96 Did Brazil's railroads stimulate the country's coal, iron, and capital-goods industries? Brazil's large coal reserves in the South were generally considered commercially unfeasible because of high sulfur content. There had been some efforts to exploit the reserves, nonetheless. The first major coal mine, begun in 1854 by an Englishman, received a 10,000 pound government contribution from Rio Grande do Sul. Aid also came in 1907, when the federal government pledged itself to promoting the use of national coal on the Central. When World War I broke out, however, almost all coal was still imported. The inflated price of the import caused by the war generated a race for coal mines. In 1918 the federal government extended three loans to coal companies, $235,000 to the São Jeronymo mining company alone. During the rest of the Republic, coal mines would receive $1,500,000 in federal funds. In addition, the minister of transportation instructed all federal companies to use national coal. The Central installed a $150,000 pulverizing plant to mix in Brazilian coal, but the experiment died soon after the war. Federal railroads refused to use the national product because it produced only half the energy of the imported coal due to poor vaporization. It was, consequently, substantially more expensive. The only bright spot was the State of Rio Grande do Sul, which took over a mine to encourage the industry. Although never a financial success, the mine eventually furnished most of the needs of the state-owned railroads, which operated more than

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two-thirds of the track in the state. Nonetheless, coal production in the 1920s saw only a 20 percent growth and remained completely inadequate for Brazil's needs.97 The iron industry also received little impetus from railroads, despite a 1910 federal policy favoring national products. Brazil's vast iron reserves went largely untapped during the Republic. In 1920 all of the foundries and metalworking plants in the country employed merely 10,000 persons and contributed less than 3 percent of GDP. Clearly, these were not the big firms of which Gerschenkron speaks when he refers to the relative advantages of backwardness. Nearly all rail was imported. The lack of foundries was interesting, given the large workshops maintained by the railroads. Already in 1907 the Central had 3,706 persons working in its repair shops, and the Sorocabana had the largest shop in South America in 1930, capable of repairing three hundred locomotives a year.98 Although Brazilians repaired locomotives, they did not manufacture them. Despite granting preference to national producers and even a subsidy on locomotives, few locomotives were produced in Brazil. In 1920 only 2 of the 2,315 locomotives in service were Brazilian-made. In that year the Central purchased 58 national engines but foreigners' vast dominance in the field was secure. Brazilian manufacturers fared better with passenger and freight cars. In both of these markets federal railroads gave national producers privileged treatment. In 1915 almost one-third of federally administered passenger cars and more than half of the freight cars were Brazilian-made. Only about 6 percent of private passenger cars and 17 percent of private freight cars were locally produced. In 1920 about a third of both types of wagon came from Brazilian manufacturers on federally run trains; only 20 percent of private passenger and 17 percent of private cargo wagons were Brazilian. But even here the industrial stimulus of railroads was relatively slight. Under the category "cars, wagons, carts, elevators," the 1920 census shows only 2,994 employees and a capital of 32,485 contos (approximately $8.1 million). Half of the companies had no motors at all, and the entire sector only recorded 3,348 horsepower. Again artisan manufacturing predominated: only 9 of the 533 companies questioned employed over 100 workers.99 Because Brazil's railroads had been born to meet the demands of the world economy rather than because of national defense concerns, as in Japan and to a lesser degree Russia, and because its ruling class and state administrators firmly believed in the international division of labor, the Brazilian railroad did not have significant backward linkages. The state's role in railroading did encourage development by aiding national capital accumulation. Nationalizations meant that profits made from state railroads remained in the country. The nationalizations also saved the country money because almost all of the profit guarantees had

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been paid abroad. By 1929 the union owned 48 percent of all railroad capital (roughly $482,500,000), the states owned 8 percent ($83,900,000), Brazilian private investors owned 16 percent ($161 million), and foreigners only 27 percent of all capital ($276,500,000). The declining importance of railroads as a focus of foreign investment is demonstrated in the British decline from almost two-thirds of their direct investment in Brazil in 1918 to only 36 percent in 1926.100 The extent to which national ownership of railroads represented a national savings depends in good part on who furnished the capital to purchase the railroads. By a very rough estimate, the internal debt contracted for railroads was four times the external debt contracted for the same purpose. It is impossible to determine who purchased the internal bonds, but as about 70 percent of the bonds outstanding in 1915 were in gold, they were attractive to foreigners, especially French investors. After World War I French investors shied away from Brazil, so they probably purchased few of the 315,634 contos of bonds issued between 1915 and 1925 for railroads; British and North American investors were never interested in Brazil's domestic bonds. Probably at least half of all the nationally issued bonds were purchased by Brazilians, which would mean that they provided at least 40 percent of the capital for nationalizing the railroad, a substantial sum for an underdeveloped country. Because most of the nationalized lines had been foreign-owned, the nation enjoyed a net savings by paying off a large part of the debt at home. One must add, on the other side of the ledger, the not uncommon overpayment of foreign companies for their assets. The experience of the São Paulo Northern has already been mentioned. The British investors who bought the Araraquara from Paulista planters supposedly purposely maladministered it to provoke a state takeover; they made a profit of 1,950,000 pounds on an investment of 850,000 pounds. On the other hand, some railroads received compensation inferior to the capital invested, such as the Porto Alegre and Novo Hamburgo Railway taken over by the state of Rio Grande do Sul or the Brazil North-Eastern Railroad, which received no compensation at all. 101 Public railroads aided the economy by providing employment to locally owned construction companies. Local contracts and political influence counted for more in Rio's government circles than in London boardrooms. This in turn meant that local manufacturers of construction materials had a better chance of entering the market, even though foreigners continued to dominate. Foreign construction firms chose their compatriots as suppliers for reasons of trust, special credit arrangements, or interlocking directorates; Brazilian construction companies did not have the same sort of relationship with overseas manufacturers.102 In addition, state enterprises provided more opportunities for Brazilian engineers and technicians at the middle and upper managerial levels to

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increase their experience, as foreign companies favored foreign-trained experts. Public railroads became a training ground for technocrats and entrepreneurs. Another service public railroads were supposed to provide to justify the investment was colonization of marginal areas and integration of the nation. As previously stated, railroads tied together the Center, the South, and the West. They facilitated the movement into western São Paulo and Mato Grosso and the South, particularly Paraná. These states received the greatest net in-migration in the country during the Republic. On the other hand, in the vast North, where Brazilians had always feared a foreign invasion, only the Madeiro-Mamoré Railroad, which eventually connected Bolivia with the Amazon at the cost of the lives of five thousand construction workers, broke the area's isolation. Its sparse population and extensive river network inhibited railroad building. In the stagnating Northeast, few lines extended into the sertão. As table 13 demonstrates, the region had under one-third the track of the Center, and even in per capita terms its track was about one-third that of its prosperous neighbor. The region was not integrated internally by rail; Maranhão, for example, only had a line from its main port to the interior. Nor was the Northeast connected with the Center by track. This was perhaps intentional, for the lack of routes out of the region helped maintain a nonmobile labor force.103 The frontier expansion that the railroads did bring about merely reproduced the prevailing social relations, maldistribution of income, and predatory agricultural techniques. Brazil's frontier was not a democratic "safety valve." Large plantations accompanied the march west; the trains sought land favorable to exports, and the political and economic power of planters permitted them to dominate the new lands. Indeed, frequently planters were shareholders in the private lines that went into the interior and were able to influence the route to their own advantage. Martin Katzman adds to these reasons for the lack of frontier democracy the reluctance of planters to sell off land in small parcels because of the absence of other comparably profitable investments and because of the lack of financing for smallholders. A monopoly of good land also aided the fazendeiro by attracting workers, as previously discussed, and made the workers dependent on the fazenda. Colonization programs to establish smallholders were rarely successful. Most railroads did not receive land to defray construction costs, as they did in the United States. Hence they had little incentive to engage in settlement programs. The Brazil Railroad was an exception, but its colonization plan failed because of difficulty in securing financing, the expense of settling people on the land, and the company's overextension. Speculators were also reluctant to purchase land along new railroads because of the problems in establishing legal title and of financing sales to settlers. The railroads during the First Republic only brought about

Table 13. Regional Distribution of Rail, 31 December 1930

South

Total

% of Total Km of Rail

8,937

3,785

19,211

59.1

0

639

1,392

2,031

6.3

0 375 120 5,642

2,603 1,939 5,903 20,021

180 0 115 5,472

2,783 2,314 6,138 32,477

8.6 7.1 18.9 100.0

Northeast Center 3

Administration

North

Union owned (km.) Federal concession with guarantee Federal concession without guarantee Property of states State concessions 0 Total

1,342

5,147

0 0 0 0 1,342

% of national system % of national population Track (thousands of km.) Track per capita national average % of federal revenue collected % of federal railroad capital Ratio of % of federal capital to federal revenues collected

4.10 4.80 0.73

17.40 35.80 0.42

61.60 47.40 1.12

16.80 12.00 1.21

1.70

10.00

78.80

8.50

99.0c

8.10

27.80

50.10

14.00

100.0 d

4.8

2.8

0.6

1.6

0.86

Sources: Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatística das estradas de ferro do Brasil, 1929-1930, p. 15; DGE, Anuário estatístico, 1939-1940, pp. 1293, 1296. a Includes Goiás and Mato Grosso b Includes federal concessions on which the states set the fares c Total less than 100 because of funds received in London d 3 1 December 1929

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the growth of family farms by encouraging large plantation owners to expand westward. As the planters moved westward the old, worn-out land they left behind was sold to small-scale farmers, who often turned it to domestic agriculture or grazing.104 To a considerable degree, the railroads reinforced the preexisting division of wealth and power. The major port cities, particularly Rio, enjoyed vastly expanded hinterlands as they became the locus of a wide rail network. Minor ports consequently found themselves overshadowed by their thriving competitors. In the interior, railhead cities such as São Paulo and Curitiba became the nodes for large systems in the Center and South; there were no such nodes in the interior in the North or Northeast. The cities that benefited did so not only because of geographic chance or preexisting settlement patterns, but also because they had political muscle to ensure that rail concessions used them as the hub of the network. Some formerly prosperous towns dwindled because of the railroad: witness the poignant decline of Vassouras.105 Although the economics of railroad building in an export country dictated that the rich would get richer, federal policy ameliorated this tendency somewhat. It is intriguing to note that, despite São Paulo's overwhelming economic dominance and supposed political hegemony, the state received only a small share of federal railroad investment. In absolute terms São Paulo ranked fifth as a recipient of union railroad funds, being awarded onefourth as much as Minas Gerais and one-half as much as Bahia. In terms of per capita federal railroad disbursements, São Paulo ranked sixteenth, receiving less than half of Bahia's allotment and almost half of Pernambuco's. Clearly, the growth of São Paulo's railroads was not a result of internal colonialism. The state did not siphon funds from its neighbors. The reverse is the case; São Paulo constructed the country's densest network because its prosperity attracted foreign capital and, more important, created a provincial bourgeoisie intent on building railroads. The federal government's parsimony relative to São Paulo was partly a manifestation of that state's assertion of its autonomy. The federal government did not have to build lines in São Paulo because private individuals had already done so, nor did the union have to nationalize them because, if it were prudent, the state government of São Paulo would step in. São Paulo was enormously more active in awarding concessions and taking over railroads than any other state in the union. This display of autonomy was expensive because, as table 14 points out, the state paid four or five times more into the Federal Treasury than it got back. Paulistas such as Senators Alfredo Ellis Júnior and Cincinato Braga denounced the union's railroad spending policies as unfair. They sought more federal funds. However, on the national level São Paulo had to share power with its fellow states.106

Table 14. Federal Revenue and Expenditures, by Geographical Division Region or City

Year

% of All % of All Federal Receipts Federal Expenses

Expenses/Receipts (%)

North

1890 1900 1910 1923 1930

7.0 8.5 15.8 2.0 1.7

2.9 1.1 2.9 1.6 1.3

40.80 15.80 16.80 85.40 107.30

Northeast

1890 1900 1910 1923 1930 1890 1900 1910 1923 1930

15.6 17.3 14.1 10.3 10.0 67.8 49.0 58.1 78.7 78.8

13.2 5.0 7.3 5.7 5.5 69.2 70.6 79.8 59.1 64.2

89.70 33.30 47.90 61.90 80.10 102.70 169.40 126.80 83.90 117.90

South

1890 1900 1910 1923 1930

5.2 6.6 8.4 6.8 8.5

10.7 4.2 6.8 5.5 5.1

157.70 74.00 74.10 90.90 87.27

London

1890 1900 1910 1923 1930

4.4 18.6 3.6 2.2 1.0

6.0 19.1 3.2 28.1 23.9

143.20 121.00 83.40 1,411.11 87.30

Total

1890 1900 1910 1923 1930

100.0 100.0 100.0 100.0 100.0

102.0 100.0 100.0 100.0 100.0

102.60 117.50 92.30 111.70 114.60

1890 1900 1910 1923 1930 Federal District 1890 1900 1910 1923 1930

12.9 10.2 16.0 25.7 28.4 51.5 37.5 40.7 49.8 44.5

2.9 1.1 2.6 4.4 5.0 63.8 68.1 74.2 51.4 55.6

22.70 10.90 14.90 19.10 25.70 123.60 213.60 168.60 115.40 180.80

Center

São Paulo

Sources: Calculated from Contadoria da República, Balanço da receita de despesa da República dos Estados Unidos do Brasil, 1850, 1900, 1910, 1923, 1930, passim. Table Η-continued Notes: North=Amazon and Pará Northeast=Maranhão, Bahia, Sergipe, Alagoas, Pernambuco, Paraíba, Rio Grande do Norte, Ceará, Piauí Center=Espírito Santo, Rio de Janeiro, Federal District, Minas Gerais, São Paulo, Goiás, Mato Grosso South=Paraná, Santa Catarina, Rio Grande do Sul

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The federal government's rail policy was guided by political and strategic considerations as much as by economic ones. Were the federal government seeking profitable routes, it would have built more lines in São Paulo. The two union-owned railways in the state were not established principally with an eye to profitability. The Noroeste's primary task as far as the federal government was concerned was to lay track through the largely uninhabited heartland of Mato Grosso and connect Brazil with Paraguay. The Central, which was a unique case, was built into São Paulo as much to strengthen the Federal District's political and commercial primacy as to carry the Paraíba Valley's coffee. In other states noneconomic incentives were even more apparent. Table 13 points out that the federal government's relative participation in the country's various regions was inversely correlated to the regions' ability to attract private railroads. The North, Northeast, and South received a far greater share of the union's railroad capital than their contribution to the Treasury justified, whereas the Center, particularly São Paulo and the Federal District, received far less. The inclusion of the interest guarantees and debt payments, which went preponderantly to the Center, would somewhatrightthe balance for the Center, though not for São Paulo, but federal railroad spending's net effect would still be redistributive. Conclusion The Brazilian state had become one of the most active in the world in operating railroads by 1930; it owned over two-thirds of the country's network and operated over half. This came about despite strong opposition within Brazil and in the international financial community to public enterprises, which were considered inefficient. The state's large role is partly explained by the nature of the railroad. Foreign investors demanded profit guarantees to compensate them for their large investments and long gestation periods. Nationalizations often occurred to free the Treasury from those guarantees; others took place to rescue faltering companies. But there were more than financial reasons for the state's participation in railroads. A consensus was gradually formed that maintained that the railroads were central to economic growth, national security, and territorial integration. This consensus demanded a large role for the state. Certainly this view had already existed under the Empire and manifested itself in the takeover of the Central. After World War I, sentiment grew much stronger. By the end of the Republic even the Jornal do Commércio, normally a champion of laissez faire, argued that public railroads were necessary because the state would harmonize and plan the national network rather than be guided by the narrow "local interests . . . and immediate concerns" of private lines.107 The state was not supposed to be simply a buyer of last resort; it was to assert

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itself aggressively in the sector. Although the federal and state governments were to complement successful private national companies rather than compete with them, the state was to control foreign railways. It was successful in this enterprise: foreign administration of Brazil's railroads fell from about two-thirds of the system before the war to about one-quarter in 1930, a far lower percentage than in Brazil's more prosperous neighbor, Argentina. The perception of the state's proper place in railroading evolved not only because of wartime nationalism and the demonstration effect of European nations that seized their railways during and after the war, but also because of the success of public rail administration in Brazil. The railroads operated by the states were profitable and those administered by the union had relatively low operating costs. They were healthy economic enterprises, not just employment offices for the friends of the influential. State-run railroads played an important role in forging economic development. Despite the political mastery of the planter oligarchy, federal railroads were more influential in promoting the growth of the internal economy than exports. Coffee-rich São Paulo received proportionately far less from the federal government for railroads than did the domestically oriented Northeast. The strength of the Brazilian state allowed it to protect the country's sovereignty and reshape the railroad system to domestic needs in a way colonies and neocolonies could not. Stephen Hymer, in a study of Ghana, has concluded that "the neglect of internal trade provides one of the most serious indictments of colonial political economy." United Fruit was similarly able to dominate railroads and retard internal integration in politically independent but economically colonized Central America.108 In Brazil, the complex interests and growing sense of nationhood that the export economy fostered dictated that the rail network increasingly serve the internal economy. Unfortunately, the state's activity in Brazilian railroads did not have the same dynamic effect on heavy industries that it did in Japan and Russia because the role of the state in railroads and in industry was perceived differently. The next chapter examines the state's industrial policy.

5. Industrialization

Industry grew in agriculture's shadow throughout the First Republic. It suffered from limited capital, small domestic markets, and a fairly weak industrial bourgeoisie. Factories had to rely for support on public policies that were only secondarily concerned with manufacturing. But despite the fact that most state industrial aid was an offshoot of efforts to favor agriculture or the Treasury, the country's factories multiplied impressively, eventually gaining political importance. After World War I basic industries such as steel and coal became high priorities because of their contribution to the national defense. Nevertheless, state administrators lacked the political support, independence, and will to forge a dynamic industrialization policy. Imperial Industrial Policy Industry was slow to develop under the Empire. When Dom João arrived in Brazil in 1808, he decreed the end of the prohibition on manufacturing. At the same time that he freed factories, however, he also opened the ports to foreign shipping and established low tariffs. His actions undercut nascent industries. Competition from abroad came to plague industrialists throughout the Empire and the Republic. Manufacturing's principal problem in Brazil, however, was as much the shortage of economic opportunities as foreign competition. Having found slave-worked latifundia the most efficient way to grow coffee and sugar, planters essentially undermined the possibility for an early development of native industry. The slave system impeded the growth of a money economy. The market for manufactured goods was small. Those in the position to buy generally lived in the major port cities; hence, they frequently purchased goods from abroad. In addition to a small, poor market, the lack of liquid capital available to a backward banking system makes it clear that conditions were not ripe for the growth of manufacturing. A developmental industrial policy was nonetheless possible even without a propitious economic setting. In Japan and Germany as well as in Russia,

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imperial governments forged aggressive industrialization policies in agrarian societies.1 In Brazil, although the Empire betrayed mercantilist leanings such as the royal iron factory founded in 1809 in Ipanema, São Paulo, or the royal munitions factory in Rio, for the most part the government avoided ownership of manufacturing activities or the concession of special monopolies and privileges.2 Rather than viewing foreigners as threats to national sovereignty and the survival of the state, as occurred elsewhere, Brazil's dominant class and state administrators believed Europeans and North Americans to be necessary to sustain the status quo. They wanted to Europeanize Brazil and believed reliance on the world market the best way to achieve that. Besides, the Brazilian state did not enjoy the relative autonomy of the Japanese, for example, to override the wishes of the agricultural elite. Initially, coffee's progress had impeded industry by luring resources, maintaining slavery and allowing a state with a very conservative monetary policy and incorporation laws to persist. And although coffee did produce wealth, it also furnished foreign exchange for imports and lowered the cost of transporting those imports because the ships that carried the coffee away had to bring something to Brazil. Ultimately, coffee and, to a lesser extent, sugar, cocoa, and rubber undermined the precapitalist relations they had engendered, stimulated the accumulation of capital, and created domestic markets, thereby encouraging manufacturing. In Germany, Japan, and the United States exports had also financed industrialization. In Brazil, however, no strong industrial bourgeoisie arose. People involved in the export-import trade were for the most part responsible for founding and running the first factories. Unlike in England, where artisans were often the first industrialists, they played a relatively small role in Brazil except in areas such as Rio Grande do Sul. Rather, planters, factors, importers, and exporters invested in manufacturing in addition to their other activities. They were commercial capitalists rather than industrial ones, concerned with circulation more than with production. From Europe they imported technologies already well advanced in the product cycle instead of innovating themselves. They invested in light consumer durable industries, which had few economies of scale.3 The small factories required little state aid. Because of a community of interest between industrialists, agriculturalists, and merchants, politicians beholden to the export alliance were willing to be sympathetic to some of industry's modest requests. Industrialists were not in a position to make demands. Brazilian planters played a singularly important role in industrialization because they controlled the leading export crops. In much of the rest of Latin America, foreigners controlled export enclaves. Brazilian fazendeiros' industrial investments were outgrowths of their agricultural pursuits by vertically integrating either forward, to the production of cotton textiles or lard or

Industrialization 131 canned meat, or backward, to the production of agricultural machinery, railroads, or sacking for their exports.4 Importers, who were usually immigrants, played a similar role in the development of industry. Frequently they oversaw the finishing of goods that were more economical to import unfinished for either tariff or transport reasons. When the exchange fell and imports became difficult, the importers turned to local manufacturing. When exchange was up they imported more.5 The absence of a strong bourgeoisie primarily concerned with the advance of industry would hinder public industrialization programs under the Republic just as it had under the Empire. The Republic Brazil in 1889 was hardly an industrialized country, despite impressive growth of productive capacity in the 1880s. Most establishments were artisanal, employing few laborers and rudimentary techniques. Steam, electric, and coal power were not widely evidenced. The goods produced were mainly simple consumer items such as foodstuffs, clothing, hats, sugar, and shoes. There was virtually no capital-goods industry. Basic industries, such as cement, iron and steel, petroleum, and chemicals, were also lacking. Manufacturing was centered in the Federal District, whose burgeoning population, prosperous international trade, and plentiful capital allowed it to dominate national output. In 1893 it housed upwards of 300 industrial establishments. The great majority of these were small producers.6 São Paulo, which would become an industrial giant in the twentieth century, was still at an adolescent stage. In 1896,121 firms in the state's capital reported using mechanical power. Of these, only 52 were actually industrial firms and only 11 employed more than 100 workers.7 Even the most advanced sector, textiles, produced only 48 factories nationwide in 1885. This filled but 10 percent of the country's needs.8 Foreign industrial corporations were almost totally absent.9 Foreign merchants occasionally branched out from trade into manufacturing, but in 1889 they were few in number. The Republican Revolution ushered in a brief era of industrial euphoria. Nelson Werneck Sodré has argued that during the 1889-1894 period, "the bourgeoisie was on stage,"10 and Hélio Silva maintains that during Deodoro's government the industrial bourgeoisie was in fact hegemonic. Villela and Suzigan have observed that "the first years of the Republic are perhaps the only period prior to the thirties in which the government's policies manifested an interest in promoting industrial development."11 Albert Fishlow has asserted that the 1890s were the first period of importsubstitution industrialization in Brazil.12 Industry did indeed receive an unprecedented amount of aid, but much of it was a side effect of policies aimed at assisting other sectors. Moreover, the period was not a coherent

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Industrialization

whole. There were sharp differences between the provisional government, Deodoro's regime, and Floriano's. The provisional government's minister of finance, Rui Barbosa, is often praised as Brazil's first actively developmentalist government leader, engaged in forging an industrial nation. He maintained that "the Republic can only consolidate itself among us on a solid foundation when its functions are rooted in industrial labor." This "was not just an economic issue for the state, but also a political one."13 And, indeed, the provisional government's banking and incorporation laws spurred unprecedented growth in industry. The expansionist monetary policy, relatively high tariffs, and lowered import costs for machinery in the late 1880s made manufacturing attractive. The new banks born of the Encilhamento invested and lent record amounts to industry. In Rio the real increase in cotton textile companies was greater in 1889 than it had been in the previous six years combined. It was even larger in 1890. The Banco da República, Banco do Brasil, and Banco Nacional launched many industrial concerns. In São Paulo manufacturing developed quickly; the Banco União was a principal investor.14 The speculative fever and growth of manufacturing reached as far as Pernambuco, where the British consul reported in 1894, "The industrial evolution of the last five years has been very great."15 Although it is true that there were few industrialists in positions of power at the time, the call to industry did have important political value. The Republican Revolution had been greeted by many as a truly revolutionary event, which would allow Brazil to undergo rapid economic and social changes. With the abolition of slavery, the monarchy, and the aristocracy, and the disestablishment of the church in less than two years, other great transformations seemed easily attainable. There was a widespread belief among planters and city people that now that the country had rid itself of archaic imperial institutions, Brazil could follow the example of another formerly colonial American republic, the United States. Now that Europe was exporting capital, capital goods, and labor (in the form of immigrants) while purchasing, together with the United States, record amounts of coffee, the future seemed very promising indeed. Simply releasing the long-pent-up forces of the market by expanding money, banking, and capital markets, and facilitating the formation of new companies would be sufficient for Brazil to realize its potential. Besides, industry did not necessarily conflict with the export activities; it provided planters with greater investment opportunities and a market for Brazilian raw materials. In addition, it was seen as a means of employing the thousands of newly freed slaves who flocked to the cities and threatened to disturb order. Industry's welfare was not the principal concern of the provisional government, however. Often Barbosa's assistance to industry was an outgrowth of aid to other sectors. The levy of customs duties in gold when

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133

the milréis slipped below par, for example, was meant to protect federal revenue more than industry. The downturn on the milréis beginning in 1890 jeopardized federal revenues because duties were charged according to a par milréis. Rather than accept devalued currency, Barbosa fixed customs in gold. Prior to entering the ministry and facing problems of state finances, he had professed to being "intrinsically hostile" to tariff protection for industry.16 He now moved to protect the Treasury. The "lei dos similares," passed in 1890, was actually a more lenient version of a similar law passed three years earlier. To protect local industry, the imperial government had decreed that no good could receive a duty exemption for importation if a similar good were produced in Brazil. The 1890 revision stipulated that only products produced in Brazil in sufficient number to meet all of the demand were eligible for such protection. Neither edition of the law was enforced.17 Other actions Deodoro's government took proved detrimental to industry. The most noteworthy was the Blaine-Mendonça Trade Treaty between Brazil and the United States. Signed in February of 1891, it was the first commercial treaty in nearly fifty years into which Brazil had entered. To avoid U.S. duties on sugar and to a lesser degree on coffee established by the McKinley tariff, Brazil granted duty exemptions and 25 percent reductions on a host of North American products. A number of reductions were on industrial products, which raised an outcry from Brazilian industrialists. As a congressman observed, the treaty "struck deeply at individual initiative as well as at nascent industries, incontestably in a period of substantial development."18 Despite opposition from industrial, working-class, and commercial organizations, Deodoro maintained the treaty, signaling the beginning of a diplomatic shift in influence away from Great Britain and toward the United States.19 The treaty's protection of sugar exports was also an anti-industrial act because it specified that only sugar of a relatively low quality could enter the United States duty-free; hence, the modern mills that the Brazilian government had been encouraging since the 1880s with loans and profit guarantees could not be used to export refined sugar to the enormous U.S. market. It remained a monopoly for North American refiners.20 In addition to signing the Blaine-Mendonça Treaty, Deodoro canceled the gold duties because merchants complained that the rising cost of gold made them excessive.21 With the milréis making its steady descent, this measure in effect lowered tariff protection. The Republican Constitution of 1891 similarly injured industrial interests. To further the cause of federalism, the export tax was taken from the central government and given to the states. This impeded the formation of a national market because all goods leaving any state were taxed whether they went abroad or to a neighboring state. Additionally, the decentralization

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of tax-collecting power generated a tendency to charge interstate import taxes, though the constitution forbade them. In 1904 a strong effort would be made to prohibit them, but many states, particularly the poorer ones, continued to charge interstate taxes in one form or another throughout most of the Republic.22 As I argued in chapter 2, financiers, not industrialists, were the main beneficiaries of Deodoro's programs under Barbosa and Lucena.23 Advocates of industrialization often viewed Deodoro's policies with dismay. Lieutenant Alexandre José Barbosa Lima, a federal deputy and later governor of Pernambuco, accused him of "false industrialism" and of perverting the corporation laws to create "a republican regime . . . so that a small fraction of society can form a privileged group [and] so that the personal fortune of a small number of citizens expands to the detriment of the collective welfare."24 The Bourgeoisie on Stage Floriano Peixoto, on the other hand, is generally viewed in Brazilian historiography as the republican president most favorable to industrialization. Both his military and his urban supporters viewed the expansion of factories as essential for increased social mobility and economic independence and a stronger national defense.25 At the same time, however, Floriano's administration confronted political forces and economic conditions that constrained its efforts to foster manufacturing. His three years in power offer a lesson in the limits of state autonomy in an oligarchic regime. Although Floriano's rule resembled in many ways a military dictatorship, he could not ignore the republican elements of the oligarchy. Because most of the civilians responsible for creating the Republic saw federalism and laissez faire as its main accomplishments, they opposed an aggressive federal industrial policy. Even many of his staunchest supporters were ambivalent about industrialization. Although the Jacobins cheered the growth of manufacturing, they opposed many customs duties and the protection of a weak milréis because so many of the essential goods they purchased were imports.26 Indeed, industrialists themselves often feared the devaluation of the milréis and indiscriminate increases in the customs duties because about 50 percent of the inputs in domestic manufactures were imported.27 Some of the largest industries were particularly dependent on imports: textiles often imported thread, flour mills used foreign wheat, match factories imported all of their components, and foundries imported iron in bars. Moreover, nearly all machinery came from abroad, as did coal and fuel.28 Floriano's political weakness and the pervasive importance of imports militated against a typical industrialization policy of increasing the money

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supply, devaluing the currency, and incurring budgetary deficits. Indeed, Floriano promised to enact severe economies and to decelerate currency issues to stem the milréis's fall.29 It is not surprising that a study found no great change in fiscal policy between 1885 and Floriano's government. Because of the substantial real decline in the central government's budget between the late 1880s and 1892, caused by the advent of federalism and the great expense of fighting rebellions in Rio and the South, a shift in spending patterns would have required serious cuts in some traditional outlays—with grave political consequences.30 But Floriano's failure to demonstrate support of industry in monetary and spending policy does not mean that he refused to come to manufacturing's assistance. He employed other means to encourage the growth of factories. One of the major accomplishments of the Floriano years was the tariff increase. In 1892 the duties on many goods rose 30 percent and others 60 percent At the same time, Congress exempted the importation of many raw materials and machinery necessary for industry as well as goods "of prime necessity"—essential consumer goods. It also undercut many of the advantages North American trade received from the Blaine-Mendonça Treaty by increasing duties and imposing a 10 percent "expediente" tax on duty-free goods.31 The most significant and unprecedented industrial measure of Floriano's regime was the 1892 loan to manufacturing, often cited as Brazil's first developmental industrial loan. Minister of Finance Freire argued that with the loan "the public powers entered into a new phase of protectionism, preferring industry to agriculture."32 Despite the loan's importance, however, it has not received the detailed attention it deserves. With the collapse of the Encilhamento at the end of 1891, many factories faced serious troubles. Banks had called in debts and restricted credit.33 Many factories had ordered equipment from abroad in the heyday of the stock boom but found that with the fall of currency they owed a much larger amount in milréis than expected. They also discovered that additional capital either through bank loans or the stock market was unobtainable. And many of the companies had overextended in the rush to take advantage of the easy capital that the Encilhamento produced. The sudden business slump compromised their position.34 The industrialists turned to the federal government for assistance. Symbolic of the growing interest in industry, both Floriano and his first minister of finance, Rodrigues Alves, were sympathetic. Floriano formed a committee to study how the state could attend the requests of "important industrial associations struggling with great difficulty to develop." He wanted to "improve the situation of those industries that merit aid through measures that protect the interests of the Treasury, [thereby] promoting the development and progress of national industries."35 Rodrigues Alves

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concurred in the need for emergency state aid, even though he was "in principle against the intervention of the government in industrial matters."36 The committee proposed that the federal government float a one hundred thousand conto bond issue (approximately twenty-four million 1892 dollars) for loans to industry. The federal government would extend the loans in the Federal District and state governors would do so in the states. When the recommendation went to Congress, however, even with Floriano's endorsement, it encountered a great deal of hostility. A letter supposedly signed by 405 industrialists was sent in opposition to the bill. (The bill's supporters rebutted that all but 69 of the signees were actually foreigners and many represented commercial houses, not factories.) The opponents' general argument was that sufficient government assistance had already been given via tariff duties, exemptions, and easy credit; therefore, the measure was unnecessary.37 To some extent such opposition may have been motivated by the importers' desire to stunt Brazilian competition, but not all the protests were self-serving. The opposition to the bill centered on four issues that reflected the concerns of merchants and financiers, but also some industry supporters. First was the real fear that the bill would create a new currency flood, thereby stimulating more inflation and further devaluations. The bonds would be honored at government agencies for payment of debts or taxes and would be ao portador (to the bearer), rather than to a specific person, so they could be freely traded, like currency.38 Second, as currency the bonds could have two further deleterious side effects. As it was quite possible that they could be sold at a discount (which is in fact what occurred) while the government honored them at face value when they were redeemed, there would be a loss of federal revenue. Additionally, some congressmen worried that the issue would undercut other government bond issues that were not redeemable in government offices.39 The third argument was that the loans would not really help needy industries, but rather paper ones that were invented to take advantage of the stock market boom. The bill's critics feared that it would extend more funds to a privileged few who already had profited mightily from government and bank favors under Deodoro.40 Finally, there was widespread sentiment that the state should not be the lending agent. Afonso Pena, future president of the Republic, declared that direct government aid was unconstitutional. Others worried that if the state were to be the lender, political rather than economic criteria would be employed. Moreover, there was a legal question as to whether the federal government could allocate funds that state agencies would distribute.41 The bill's advocates countered that only worthy companies would receive loans. They linked the survival of many industries to the aid. Without it,

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federal Deputy Augusto Vinhaes said, "the majority of factories will have to close down and more than twelve thousand workers will be fired and sent into the streets."42 The measure would actually strengthen the economy and the currency rather than weaken them. A healthy manufacturing sector would allow a reduction in imports, therebyrightingthe balance of payments and bolstering the milréis. By reducing Brazil's dependence on foreign markets and producers, the aid would weaken the foreign merchants' grip on wholesale and retail commerce. A common perception was that foreign merchants, especially the Portuguese, were monopolizing commerce to drive up prices. Their strength was a result of their privileged position in international trade. Were that reduced, their market power would be lessened, and prices would fall.43 The initial loan bill was defeated. However, the measure was revised to allow the Banco da República, rather than the states or the federal government, to disburse the loans. It could issue up to one hundred thousand contos to "national industries in healthy condition" in 4 percent loans, repayable in twenty years.44 The bonds were still redeemable at any government office, but now only one-third of the loans were for factories operating in the Federal District, and these did not have to be nationally owned. Congress feared that the Banco da República would only lend to firms in which it owned stock or for which it was a creditor. These were concentrated in the Federal District. To prevent this, loans were mandated to other states, even though the majority of large industries in the country were in the Federal District.45 The bond issue was a substantial victory for the industrial sector and for Floriano. Although the federal government did not directly administer the loans, it controlled them, because at the same time the head of the Banco da República became a presidential appointee. Between 1893 and 1895 the bank issued eighty thousand contos of bonds. Industry received most of the loans. About one-quarter of the funds went to agriculture; other nonindustrial pursuits received a lesser share. The industrial loans generally provided working capital rather than investment funds. A large share probably bailed out the Banco da República's debtors.46 If this bond issue, which equaled about 12 percent of the 1893 budget and 10 percent of the 1894 budget and was guaranteed by the federal government, is included in the calculations of federal spending, Floriano's government demonstrated a radical departure from earlier administrations.47 Industry commanded such federal attention in part because it underwent substantial growth in the late 1880s and early 1890s. The real capital of textile mills, for example, more than doubled in two years and production tripled. Capital-goods imports rose 70 percent between 1885-1889 and between 1890-1894, the largest single expansion of the nineteenth century.48

138 Industrialization But for all of this flurry of industrial activity, it must be stressed that even under Floriano manufacturing's growth was more the by-product of policies than their intended goal. Industry expanded more because of the larger money supply, cheaper milréis, and feverish stock market than because of tariff policy and public loans. The growth of the money supply undercut the value of the milréis. This created inflation, but at the same time it raised the price of imports. Between 1885 and 1894, the estimated cost of living rose 108 percent, but the milréis depreciated 161 percent. The net effect was to protect industry from imports. Inflation offered factory owners additional profits because wages did not keep up with prices and the real value of their debts declined.49 The impact of this first great burst of industrialization was twofold. On the one hand, industrial capacity grew and industry gained an unprecedented economic and political importance in national life; it could no longer be ignored. Many of the companies created in the Encilhamento were not ephemeral; they became thriving concerns. On the other hand, the side effects of the policies adopted were to plague the economy and affect economic thinking for the rest of the Republic. Congressman José Oiticica put it eloquently: "The chamber knows that bank issues... grew, developed, inundated the country in much less than two years in the name of development, of material progress, under the slogan that we were too much a consuming country and had the obligation to create industries to liberate ourselves from Europe's commercial centers, which imposed their products on us. That is how the banks of issue sprang up." He then listed the results of this aggressive developmental policy: inflation, the fall of the milréis, lack of confidence on the part of foreign investors, and the creation of many new companies that were speculative and with no chance of operating successfully.50 Although the experience of the Republic's first years did set a precedent for state intervention, at the same time it necessitated that future governments attempt to increase the value of the milréis and balance the budget, both of which made direct aid to industry difficult. More important, on the ideological level, currency expansion was discredited. Industries in the minds of many were merely the artificial creations of speculators; the state's intervention in the economy was viewed as both inefficient and corrupt, as only a relatively small number of investors had benefited. The Planters Return In 1894 the planter oligarchy returned. The accepted view is that they instituted a policy of laissez faire and free trade. Industry was no longer considered important; the country had to tend to its agricultural vocation. Although this version is credible, its overstates the differences between the

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free traders and the industrialists. In fact, in their views on industry, as in their views on public finance, they shared many economic assumptions. The most outspoken radical and oft-quoted champion of the free trade school was Joaquim Murtinho. He argued that only natural industries deserved to survive in Brazil. (He defined "natural" industries as those that had "the capacity to produce the maximum result possible in relation to the capital employed with the lowest price in a regime of free competition.") He went on to assert that "an industry in which labor represents the principal item in the cost of production should today be considered artificial in Brazil, even if all its raw materials exist among us." Protectionism increased the price of living, drove up the cost of labor, and thereby weakened Brazilian exports' competitive position. Moreover, factories drew capital away from the activity in which Brazil had a comparative advantage: agriculture. "The economic ideal of a country," he lectured, "should not be to import little, but to import and export much."51 Government intervention by definition was a distortion of the market and consequently led to the misallocation of resources. Historians have too frequently taken Murtinho's pronouncements as the blueprint for public policy between 1894 and the First World War. Although most influential people agreed with much of his argument in principle, it was both politically and economically very difficult to enact. Too many important planters, merchants, and bankers had themselves invested in manufacturing. In the potentially explosive cities, too many people were employed in factories for any president seriously to consider abandoning them. State aid had been frequently called for by agriculture, commerce, and finance; in the late 1890s, with coffee's price descending, planters requested federal assistance. Because of self-interest, laissez faire was not practical. As the secretary of the Associação Comercial of São Paulo explained, "the principle of 'laissez faire, laissez passer' has created incalculable harm to certain nations like ours, which, because they do not have industrial knowledge . . . will continue for many years to be the tributaries of foreigners and dependent on all economic eventualities and political vicissitudes."52 Natural industry had a further appeal for another group of capitalists. The industries that the Centro Industrial termed "natural" were those that used Brazilian raw materials. These provided a market for agriculture. When the Centra's president, Serzedelo Correia, listed industries that could be protected, he mentioned goods that today are considered agricultural: cocoa, coffee, cereals, hides, lard, rice, and wine.53 The textile industry also provided an ample market for cotton producers. Although merchants frequently complained of protective tariffs, as a group they did not oppose protection, because many of them were also involved in production. The Associação Comercial of São Paulo complained

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in 1895 that Brazil imported too many basic necessities and was overly dependent on coffee. When the Rio association formed a committee to study the tariff in 1902, it chose as the committee president Serzedelo Correia. His study asserted that Brazil needed "economic emancipation" from foreigners.54 The requirements of the Federal Treasury were the most important reasons why Paulista presidents following Floriano were unable to undo the protection of industry. Because as much as 70 percent of all federal revenues came from import duties, it was impossible to adopt a policy of free trade.55 This is not to say that there was not an attempt. The 1895 tariff was relatively high because the official value of the milréis for evaluating duties was halved (from twenty-four to twelve pence). Importers thus had to double their milréis payments. After the tariff produced a dramatic drop in income, some congressmen argued that it was too high and actually prohibited goods from entering altogether. To correct the situation, a much liberalized tariff passed Congress in 1898. The commission that sponsored the tariff change, according to one deputy, "was dominated by import merchants."56 When revenues dropped further in 1898, Congress returned to a somewhat protective tariff. The tariff passed in 1898 resurrected partial gold duty payments to prevent the milréis's decline from further eroding the real value of customs receipts. Ten percent of the duties in 1898 were paid in the gold equivalent rather than in paper milréis. The figure was raised to 15 percent in 1899 and to 25 percent in 1900. Because the gold milréis was valued at twenty-seven pence but the paper one for duties was fixed at twelve and because the market value of the milréis in 1898 was slightly over seven pence, the gold charge made a considerable difference in the duty rate. The 1900 tariff remained in effect during the rest of the First Republic, with small yearly modifications. It is necessary to study the vagaries of this tariff to determine the protection level it offered. First a good was imported. Assuming that it was one of the majority of specific goods, it would then be categorized and weighed. One thousand kilos of ironwork, which owed 400 reis per kilo, then officially owed 400 milréis. With the 25 percent gold charge, 300 milréis would be paid in paper milréis and the other 100 had to be purchased through vale ouros. If it were in 1900, when the market value of the milréis was 9.5 pence and the gold 27, almost 3 paper milréis had to be spent per milréis vale ouro, hence another 280 milréis.57 Under this procedure, it is extremely difficult to determine the amount of protection goods were actually receiving. The tax was supposedly an ad valorem charge of 50 percent on an appraised value of imported ironwork. The appraisals, however, were gross figures that covered a wide range of products and that were changed only sporadically over the years.

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Consequently, the figure may have had little correspondence to the actual value of the import. During the rapidly appreciating era of the milréis (between 1898 and 1906), the appraised rates of goods lagged behind their falling price in milréis terms. Thus real protection increased substantially. In a time of appreciating milréis, this mechanism could cause more than a doubling in the duty rate. On the other hand, if the milréis were to fall, as it did after 1914, the lagging appraisals could cause a substantial decline in the tariff's protection.58 The actual ad valorem goods also paid higher duties as the value of the milréis rose. The import was appraised at its import price in foreign currency (purchase plus transportation), calculating the milréis at a fixed twelve pence. If a good were imported worth one hundred pounds and the market rate was below the official one, say, ten pence per milréis, its actual import price was twenty-four hundred milréis and it paid duty on an appraised value of two thousand milréis. This caused a duty savings of 17 percent of its value. If, on the other hand, the market value of the milréis were above the official one, say, fifteen pence, then the true import price of the good would be sixteen hundred milréis and it would be paying on 20 percent more than its price. The gold customs duties further complicated the question of the level of industrial protection. The federal government followed two contradictory policies. Gold duties were set in part to increase industrial protection. Yet the Paulista presidents reduced the money supply to increase the milréis's value. This essentially decreased the differential between the gold milréis and the market milréis. Thus the protective value of the gold duties diminished. More important, an appreciating milréis lowered the cost of imported goods. The irony was that, although the government's policies increased protection levels (that is, the customs duties as a percentage of the final price), the actual wholesale milréis price of imported goods declined. Take, for example, a good taxed at 50 percent that did not have its official appraisal raised between 1897 and 1904. Its protection would rise to 102 percent by 1904 because of gold duties and because the exchange rate rose while the official appraisal did not change. During the same period its final import price fell 14 percent.59 In compensation, Brazilian production costs fell. Murtinho's monetary deceleration lowered prices. Clearly, imported inputs became cheaper. Domestic prices also fell. Although the exchange rate improved 54 percent between 1898 and 1905, prices in Rio dropped, by one estimate, 37 percent.60 Customs duties made up the price variance between imports and domestic products. If we use import duties divided by imports as a measure of protection, they increased from 28 percent in 1898 to 39 percent in 1901 and 53 percent in 1906. Another estimate of textile duties shows customs dutiesrisingfrom116 percent in 1898 to 160 percent in 1902.61

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Industry appears to have fared well under Campos Sales and to a greater extent under Rodrigues Alves, despite Murtinho's obviously greater concern with resurrecting Brazil's foreign credit and returning to the gold standard than with stimulating manufacturing. Many factories were hurt by the turn-ofthe-century deflation and the banking crisis. Bankruptcies were numerous. Nonetheless, the textile industry appears to have almost doubled production between 1895-1899 and between 1900-1905. Stein terms the period after the 1900 tariff the "Golden Age."62 Factors divorced from federal policy were partly responsible for manufacturing's growth. Depressed coffee prices and the 1902 prohibition on planting of new trees in São Paulo drove some capital into industry. Also, foreign capital resumed its flow to Brazil as the worldwide 1890s depression ended and the milréis stabilized. But it is also true that federal politicians had become far more sensitive to industry's needs since the beginning of the Republic. Murtinho's disdain for factories was not characteristic of the dominant vision. Rather, Serzedelo Correia's explanation of the 1896 tariff represented a stronger current of thought: "[The law's] objective was to increase tariff revenues. . . . But it also had the objective of protecting certain industries that, already founded and functioning, are a source for [the employment] of national labor."63 Indeed, the fact that Serzedelo, Floriano's minister of finance, was the spokesman (relator) for almost all of Campos Sales's budgets, which he defended, demonstrates the continuity of industrial policy. The issue was not whether there should be protection but whether there should be, in Campos Sales's words, "inopportune protection." The tariff should not foster new industries, but guard existing ones.64 Leopoldo de Bulhões, Rodrigues Alves's minister of finance, acknowledged in his 1904 report that since 1896 Brazil had maintained high tariffs with the aim of protecting national industries. Six yeas later he proclaimed in a speech that, although he was a "fervent follower of free trade," since 1897 he had collaborated in preparing the tariff in which his "approval of protection for industries that... appear viable" was obvious.65 The leader of Congress for over ten years, José Gomes Pinheiro Machado, and the governor of Rio Grande do Sul, Borges de Medeiros, both proclaimed themselves in favor of "moderate protectionism."66 Even the Congress for Commercial Expansion, a private group constituted in 1905 and operating under government auspices to suggest ways that Brazil could expand its exports, recommended modest tariffs for natural industries.67 Certainly, this was far short of the aggressive encouragement that the Japanese and German governments extended to industry; but it was a recognition that industries formed an important and legitimate part of the national economy. Industry was beginning to take on importance less because a vocal industrial bourgeoisie could demand favors—although the largest industrial

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association, the Centro Industrial do Brasil, was founded in 1902 and merged with the Centro Industrial de Fiação e Tecelagem de Algodão—than because it was important for the economy as a whole. It reduced imports, consumed national raw materials, and provided revenue. Domestic producers also increasingly became important tax contributors. To compensate for the reduction in federal revenue in 1899, a tax on internal consumption of tobacco, alcoholic beverages, perfumes, soap, candles, shoes, hats, and vinegar was created and enforced. In 1900 cotton and wool cloth were added. Over the years other goods joined the list, making the tax an important source of revenue. In 1900 it represented 15 percent of total revenues and later contributed as much as one-third of federal revenues.68 Employing the thousands whoflockedto the cities every year was also an important consideration for politicians. By 1906 Rio's industrial work force numbered over 115,000. Though still comparatively small, this was quite an advance from the 54,000 registered in 1890. The majority of these people worked in artisan workshops, but they still benefited from the tariff. Workers were also becoming more vocal and organized. After 1902 they began organizing on an industrywide level as anarchists gained influence. An ephemeral socialist party was founded in that year. In 1903 Rio experienced its largest strike up to that time and the following year faced a revolt in which workers participated. The first national workers' congress met in 1904, and in 1906 São Paulo was shaken by a series of strikes.69 A prosperous industrial sector would aid the maintenance of social peace. The Industrial President The acceptance of industry as a necessary part of the economy in official circles became greater with the inauguration of Afonso Pena in 1906. As we have seen, Pena differed markedly from his three predecessors. He owned a gold mine and a large textile mill in Minas. He had been the president of the Banco da República while it administered the aid-to-industry loan, and in 1899 had headed the Commission on Extractive Industries. In that capacity he wrote Campos Sales that "private initiative, [which] is so weak here, can accomplish little if it is not encouraged and aided by the public powers of the union and the state."70 In 1905 Pena wrote a friend that, although he thought Murtinho was "a great statesman," he was not "in perfect accord with his ideas . . . against the intervention of the state in the economic world. I am a moderate protectionist, attuned to the circumstances of our country."71 The new federal orientation found a resonance in civil society, especially among coffee planters. Although fazendeiros were traditionally hostile to industry as a group, even though many of them invested in factories, the coffee crisis at the turn of the century made them reconsider their previous stand. Cândido Rodrigues, São Paulo's representative to the valorization

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talk in Taubaté, observed that Brazil should end the regime of laissez faire. The English had initiated it because they needed to import raw materials and wanted them cheap. Brazil, with abundant raw materials, should do the opposite: it should protect its market and develop national industries.72 The extent to which the interventionist wave after 1906 was guided by agricultural interests more than industrial ones is remarkable. With the export economy ailing, many states turned to encouraging agricultural diversification: Minas and Rio state passed such measures; Bahia subsidized a sugar cooperative; and Rio Grande do Sul encouraged the formation of xarque, wine, and lard cooperatives. The federal Ministry of Agriculture, reinstituted in 1909 (it had existed earlier but was dismantled in 1892), set out to stimulate the growth of rural syndicates.73 The home market became increasingly important as the population and GDP grew and improved communications and transportation facilitated exchanges at the same time that export markets sagged. Between 1889 and 1912 the population grew by almost two-thirds, cities grew even faster, and the GDP tripled. Just between 1906 and 1914 railroad track increased more than 50 percent, shipping 40 percent, and the GDP doubled, even though exports grew only 25 percent.74 Most states sold primarily to domestic markets, especially to the Federal District. It is not surprising that tariff protection of the internal market found many supporters. This concern about the internal market abounded in government circles. Afonso Pena wrote in 1907 about the tariff: "It is proper to aid principally the various types of agricultural industry [while] relative to manufacturing industries . . . improving it within reasonable limits."75 His successor, Nilo Peçanha, pronounced to Rio State's Congress while still its governor that "certainly the solution is in agricultural protection, which should accompany, if not precede, factory protection."76 Hermes da Fonseca, president from 1910 to 1914, recognized "the necessity of conceding relative protection to national products; but equitable, rational protection that only comprises those products that originate in the Brazilian earth."77 Economic intervention in the form of tariffs still faced considerable opposition, particularly from urban consumers, who resented high duties. Their most sensational voice, the Correio da Manhã, declared, "[Our] attitude has always been against protectionism, which produced the following results in Brazil: a few industrialists accumulated sizable fortunes at the same time that agriculture struggled in misery, commerce practically wasted away; the liberal professions barely gained enough for a meager subsistence; government employees in general did not have enough to meet basic necessities and the people went hungry."78 Nonetheless, duties increased. Many industrialists complained in 1900 and 1901 that the growing value of the milréis had undercut protection. To rectify the problem,the federal government increased specific duties. In 1905

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Pena raised the gold quota as much as 25 percent on some items and 10 percent on the remainder. By 1914 a U.S. Department of Commerce representative concluded that Brazil had the highest tariff in the Western Hemisphere. A Brazilian customs inspector demonstrated in 1913 that Germany's highest duties on textiles were less than half those of Brazil's lowest, and France charged from one-third to one-eighth the Brazilian rate. Often Brazil charged duties as high as 800 percent, rather than the official 50 percent to 60 percent. And the duties were not simply intended to garner revenue; they were fashioned to aid Brazilian manufacture. Raw materials, intermediate, and capital goods were subject to low duties and many companies won exemptions in imported inputs to stimulate manufacturing.79 Industry received other aid as well. The Caixa de Conversão provided protection by stabilizing the milréis at a relatively low level. The Caixa's second advantage was that it expanded the money supply substantially, increasing available credit to the newly strengthened banking system. The Banco do Brasil's reorganization in 1906 partially as a banker's bank and the shaking out of many weak banks in the 1900-1901 crisis left a much healthier system. Cash on hand declined, so the velocity of money rose. The Banco do Brasil's inability to serve as an investment bank was compensated for by the steadiness of the financial system. And although it could not purchase shares in companies, it did frequently extend loans to industries.80 The influx of foreign capital, which swelled impressively after 1905, was as responsible for the industrial boom as was state aid. Foreign investors avidly seeking opportunities all over the world after the turn of the century found Brazil's stable currency and growing market inviting. The years between 1905 and 1914 represented the greatest influx of foreign investment in Brazilian history prior to World War II. Between 1908 and 1914 alone an estimated $925 million was invested in Brazil, perhaps over half of it foreign.81 Industrial investments (including sugar mills) constituted a small part of foreign inputs. There were twenty-five European and North American industrial firms that set up between 1905 and 1914. This represented 12 percent of the companies authorized to function in Brazil and a mere 3 percent of foreign direct investment.82 If one considers foreign factories' share of all industry rather than their percentage of foreign investment, they loom larger, however. The 1907 industrial census revealed that the country's largest factory, the Rio Flour Mills, and three of the nine next-largest were foreign-owned. The largest textile mill in São Paulo was owned by Italians and one of the largest shoe manufacturers was British. Some of the largest hat, beer, cigarette, match, cigar, metalworking, lumber, and paper factories, sugar and flour mills, and meat slaughterhouses also belonged to foreigners.83 These represented the most dynamic areas of Brazilian industry.

146 Industrialization State direct and indirect aid, coffee's woes, together with foreign investments spurred the most rapid industrialization of the First Republic between 1906 and 1914. According to the Centro Industrial's sketchy industrial census of 1907, the country's manufacturing, including artisan products, was 50 percent more than its coffee and rubber production. It listed a number of goods produced mainly in the country: cotton textiles, hides, wooden furniture, hats, cigarettes and matches, and ceramics. Because the next national industrial census of any reliability came only in 1920, there are no overall statistics on the growth during the prewar period. There are, however, several indications that it was extremely rapid. The census showed that 29 percent of the companies extant in 1920 dated their origin from the 1905-1914 period; they held 24 percent of the total capital and contributed 27 percent of the production. This underestimates the growth during the period, however, because it ignores the expansion of companies that were already in operation. Textile production, capital, number of spindles, looms, and workers more than doubled between the 1902-1906 period and 1914. In fact, of all the textile machinery in place in 1945, half had been installed prior to 1915. Other sectors also increased their production capacity. Capital-goods imports for 1912 were more than three times what they had been in 1906. At the same time, production of foodstuffs for the domestic market boomed.84 World War I World War I accelerated industrial growth, but much more because of temporary changes in the world economy than because of state measures. Indeed, in view of the favorable climate for industry in the prewar years, the disturbance of international markets during the war, as well as the rise of nationalism and national defense concerns, one is struck by the relative failure of state officials to help industry. Whereas states in Europe and North America responded to the conflict by increasing their economic presence and stimulating industrial production, Brazil's federal government first followed an orthodox laissez faire course and then interceded in good part to aid coffee planters. Only a few industrial sectors deemed important for the national defense received attention. Certainly, manufacturing grew during the war. The industrial spurt of the prewar years had leveled off already in 1913 and production plummeted in 1914. But by 1919 industrial output by one estimate stood at 60 percent above the 1914 total. The 1920 industrial census showed that 44 percent of the industrial establishments extant in that year had been founded during the war; they were responsible for one-quarter of total production.85 The nature and causes of the growth of manufacturing during the war have been hotly contested. Fundamentally, the issue is whether industrialization

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was the consequence of export-led growth or was instead the product of the disruption of the international markets. It is clear that the European conflict provoked a dramatic rise in the cost of imports, which allowed national products to capture the market, raise prices, and realize healthy profits. Thus the "adverse shock" of the war spurred manufacturing. On the other hand, the market and productive capacity had existed before the war and were, therefore, the results of export-led growth. Brazil's limited capacity to import during the war prevented the purchase of capital goods and no appreciable native capital-goods industry arose. The capital accumulated during the conflict, however, permitted the importation of vast quantities of capital goods after 1918. Thus it was a two-step process that fostered industrialization: protection from foreign competition, and capital accumulation followed by the opportunity to turn the capital into investment through imports.86 The state had little to do with the growth of industry during the war. Although aid to industry was specifically mentioned in the 1915 issue of fifty thousand contos to the Banco do Brasil, little apparently found its way there. There were a few loans to sugar mills, cottonseed-oil factories, and a meat packing house, but their impact seems to have been small. Despite President Bras's substantial personal investment in a textile factory, the principal assistance that light industry received under him was the expanded money supply that had grown to cover government obligations and help coffee, not manufacturing.87 The one industrial sector that did receive the benefit of state aid was heavy industries such as steel, iron, and coal. The threat of invasion and isolation from European markets posed by World War I created a heightened awareness of the need for greater self-sufficiency.88 The national defense joined the balance of payments, consumption of national raw materials, and the need to employ the urban working class as principal rationales for encouraging industrialization. Concern with strengthening Brazil's defensive capacity had begun prior to the war. As president, Marshal Hermes da Fonseca paid attention to the young officers known as "young turks" who wanted to modernize the military. In 1912 the army's chief of staff, General Caetano de Faria, denounced foreign ownership of strategic sectors such as railroads and ports and recommended state ownership instead. The Clube Militar stressed the importance of self-sufficiency in weapons. The influential journal A Defesa Nacional, begun in 1913 by a dissatisfied lieutenant, called continually for development of the steel, coal, and weapons industries.89 The journal was, in fact, reiterating the position of many Florianista officers who had seen industrialization and the construction of the transportation infrastructure as essential for defensive purposes. These officers presented in an embryonic form the current-day doctrine of national security. Although they did not

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argue that they should run the country, they did maintain that national defense (or national security) was more than arms and protecting the shore; it was the strengthening of society. Their preoccupations were shared by important members of society. In 1915 the Liga de Defesa Nacional was founded to encourage the country's preparedness. With the eloquent poet Olavo Bilac as its spokesman and strong military support, the league's speeches and celebrations covered a wide sector of the country. It had strong ties with the political establishment and counted on some of the country's richest industrialists and planters, as well as the guiding lights of the intelligentsia.90 The most radical nationalist group of the First Republic, the Ação Social Nacionalista (ASN), was founded at the beginning of 1920. It welded together a very loose network of civic organizations, patriotic journals, and benevolent societies to form a national confederation. It claimed at its height (mid-1921) more than 180 affiliated groups with a total membership of 250,000. Closely tied to members of the ruling class, the ASN called for federal intervention in banking, transportation, and basic industries.91 The necessities created by the war together with the strong reform current in civil society convinced Congress of the need to stimulate heavy industry. This sector generally required large capital infusions, which native capitalists were reluctant or unable to make, and foreigners, because of the war, were not lending capital. It fell to the state to see the sector through. Before World War I Brazil had virtually no iron, coal, petroleum, cement, chemical, or capital-goods industries, despite rich natural resources and a growing market. The state had made some attempts to encourage these sectors, but they were rather half-hearted. The high tariff had always protected consumer goods, but basic and capital goods usually entered duty free. Manufacturers complained that protection of national basic industries would bloat production costs of Brazilian finished goods and make them less competitive. Thus Brazilian industrialists impeded vertical integration and greater national autonomy. The Portuguese crown had evinced interest in establishing an iron industry in Brazil as early as 1808, when Dom João VI ordered the construction of two iron mills and an iron mine. The Ipanema Mill in São Paulo continued under state ownership until 1895. 92 Under the Republic Afonso Pena created the Geological Service to stimulate mineral exploration, but it received only scant funds. In 1910 interest in the iron industry perked up after it was predicted that the world would exhaust its iron reserves in sixty years, and Brazil was indicated as one of the world's major remaining untapped sources of iron. The federal government responded by granting an iron production monopoly to the Esperanza Company. It also lowered train rates on nationally produced iron and gave it preference in federal purchases. Nonetheless, by 1914 Brazil still

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produced virtually no iron.93 Iron and steel gradually came to be seen as the sinews of the national economy. Already before the war the traditionally liberal and free tradesupporting Jornal do Commércio had argued that without a steel industry "a nation is not truly free and master of its own destiny."94 After the war President Arthur Bernardes would second the sentiment, arguing that "it is certain that the iron industry is the primary condition of our economic autonomy."95 The federal government supplemented its prewar measures for iron and steel. Congress canceled the monopoly on steel and iron production. Instead, in 1917 it authorized the president to "develop the manufacture of iron and steel."96 Two immediate steps were the temporary prohibition of iron exports to assure sufficient raw materials for the national market and the reopening of the Ipanema iron factory under federal administration. Finally in 1918 the federal government offered loans to iron and steel manufacturers and twenty-five-year tax exemptions as well as special rail rates. Ultimately, four companies received 13,300 contos.97 The 1920s Wartime nationalism and concern with the national defense carried over to the postwar years. A controversy arose over the role foreign investors should occupy in the production of steel. The problem was that native capitalists were unwilling to invest the amount necessary to construct efficient large-scale blast furnaces. Epitácio Pessoa decided that the most viable alternative was to welcome foreign investors. He entered into an agreement with a firm organized by the ubiquitous Percival Farquhar, the Itabira Iron Company. The contract triggered a struggle that would last the rest of the Republic. Itabira's concession was attacked primarily because the company proposed to refine only a small portion of the iron it mined; the bulk would be exported and smelted abroad. Rather than decreasing Brazil's dependence on imports, the North American firm would, according to its critics, drain the country of potential riches and thwart its industrial drive. Moreover, its control of a strategic railroad would give it a monopoly on transportation to the mineral-rich Rio Doce Valley in Minas Gerais. The memory of Farquhar's somewhat ruthless practices as head of the Brazil Railroad was still fresh in the minds of critics. Although the concession passed Congress, it encountered difficulties in the courts and was never put into effect98 The Bernardes administration was opposed to the Itabira contract. It chose to rely on public aid to native capitalists as a consensus arose for some form of state support to basic industries. Even the Estado de São Paulo, usually hostile to public economic intervention, applauded Bernardes's

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initiative, observing that "one of the prime duties of the public power [is to] stimulate new industries such as this one [steel], which is crucial for Brazil's future."99 The law Congress passed in 1924 called for the construction of three private small steel mills, each with a capacity of at least fifty thousand tons a year. The Federal Treasury promised to lend 80 percent of mill costs at 6 percent interest with a five-year grace period on interest and ten years on amortization. Only Brazilian companies could receive the concessions. Congress also recommended state operation of one mill if no adequate private offer were made. However, the law was never effected because of the financial crisis of the twenties coinciding with the fiscal conservatism of Bernardes and Washington Luís. Nonetheless, the legislation was the seed of the Volta Redonda Mill later established under Vargas and demonstrated public acceptance of state economic intervention to foster sectors of strategic importance.100 The manufacture of caustic soda was the only chemical industry to receive substantial government support. Before World War I only munitions had benefited from state aid. The federal government owned a powder factory that employed 182 persons and met almost all of the army's needs. There was also a cartridge factory with 411 employees.101 All other areas were ignored—even fertilizers. The government's agricultural policy was always far more oriented toward marketing crops than encouraging productivity, so fertilizers received little attention. The war, however, led to a law in 1918 promising to the first three factories in Brazil capable of producing five hundred tons of caustic soda a year a ten-year loan for up to 75 percent of the value of the plant at only 5 percent interest. Congressmen were not thinking in large financial terms, however; they would lend a maximum of six contos.102 Petroleum fared only a little better. It was not a very large issue during the war because none had been discovered in Brazil and the automobile was still in its infancy. The federal Geological Service, nonetheless, wanted to foster this area. It was particularly interested in national companies carrying out exploration and production. Thus when a Paulista firm began operations during the war, the Geological Service purchased a drilling rig, rented it to the company, and supplied technicians. The firm failed, however, as did the other national companies to which the service leased its rig.103 In 1922 Epitácio announced that "among the great national problems fuel is without doubt the one that most intimately touches the economic life of the country."104 But his actions did not support this concern; he set aside the paltry sum of six hundred contos (seventy-eight thousand dollars in 1922 terms) for exploration. His main thrust was to attract foreign oil companies. A 1921 law attached subsoil rights to property rights on federal land and treated foreigners and Brazilians equally. At the same time, the state of

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Amazonas conceded fifty-year drilling monopolies to three foreign companies in the Amazon basin, and São Paulo awarded Standard Oil of New Jersey a thirty-five-year exploration concession.105 The last four years of the Republic saw an upswing in interest in petroleum as the Asociação de Comércio, the Conselho Superior do Comércio e Indústria, and the Committees on Agriculture and on Justice of the Chamber of Deputies all debated the question. Both the national defense and economic growth were used as arguments in favor of state aid to petroleum. Although no petroleum had yet been discovered in the country, its importance grew with the number of imported automobiles. By the Republic's last years, Brazil was tenth in the world in the number of cars.106 This upsurge in oil interest was reflected in a 1926 constitutional amendment providing that "mines and mineral deposits necessary for the national defense and the land where they exist cannot be transferred to foreigners."107 However, the law applied only to federally owned land. In June and July of 1930 the fazendeiro and future head of the Sociedade de Agricultura, Ildefonso Simões Lopes, introduced a measure to prevent foreign ownership of petroleum and return subsoil rights to the federal domain. The Committees on Agriculture and on Justice approved the bill, but the 1930 revolution erupted before it was passed. It would be four years before Vargas would finally take such steps. It was twenty-four years before Brazil would create a public oil company, a measure Argentina had taken in 1907. Until then refining remained in foreign hands.108 It should be pointed out that Brazilian economic nationalism, although expanding, was still not only somewhat timid but also generally not xenophobic. The nationalist aspects of steel and oil policy were directed less at the nationality of the producing company than at its intention to produce in Brazil. Brazilians who feared dependency and stressed the need for selfsufficiency had always welcomed foreign companies as long as they manufactured within Brazil and obeyed Brazilian laws. Even in the strategic minerals sector, where nativism was the strongest, this tended to be the case. The federal loans to steel mills, which were extended during the war and went to foreign as well as native companies, exemplified the prevailing attitude. Sectors that were not considered strategic were much more open to foreign investment. Even though there was a loud protest in some circles against the exportation of iron ore, no one protested when U.S. Steel began exporting magnesium in 1920. Nor were shouts heard when first a German and then a French company received federal concessions to export monzanite sand—this despite the sand's constituting a virtual world monopoly of the mineral.109 Federal loans to cement and caustic soda enterprises also were free of nationalistic conditions. Although the first company to take advantage of the

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federal loan to caustic soda producers was Brazilian, the first cement company of substantial size to receive special favors was Canadian.110 The most outstanding example of lack of nationalism in the basic industries was the electricity sector. Unlike other areas in which the debate was to a degree theoretical because Brazil did not yet possess productive capacity nor native capitalists willing to invest, the country did have power plants and Brazilians eager to invest in them. The electricity-generating industry had been growing spectacularly since the late 1890s, largely on the basis of the Canadian company, Light, later named Brazilian Traction. Initially, there had been many Brazilian entrepreneurs interested in constructing electrical generators. The Brazilians introduced the industry and dominated it in its early days. In 1907 and 1909, when Light won the concession for Rio's lighting, power, and trams, its bid was hotly contested by one of the largest capitalist groups in Brazil, Gaffree and Guinle, which installed electricity in a number of other cities. But the federal minister of transportation and public works sided with Light because he felt that its greater capital promised a superior system. There was little question that foreigners should be allowed to control such a key sector and few promoted the state as essential in filling the role.111 As long as public lighting was done with kerosene, municipal companies dominated. As soon as the decision was made to invest the capital to bring electricity, the concession was handed over to private companies. If the project was large, generally foreign companies stepped in. Although a number of large cities, such as Salvador, Porto Alegre, Belo Horizonte, and Manaus, reclaimed electrical installations from companies that provided inadequate service, the municipalities quickly leased the companies back out to other foreign firms. Through this method the North American Electrical Bond and Share took over, by the end of the Republic, power, light, or tram companies in half of the state capitals in the country. There were few complaints.112 Although Brazil's neighbor Uruguay had in 1912 declared a state monopoly of the production and distribution of electricity in Montevideo, Brazil maintained a laissez faire attitude. The 1891 Constitution removed control of rivers for generating purposes from federal jurisdiction, control that was not to be returned until the Vargas administration. The influential Engineers Club argued vehemently against state enterprise in the area. The end result was that, although the country's generating capacity expanded rapidly, the electrical machine industry remained in the hands of the international cartel. Since Light mounted large repair shops, it is quite possible that had a national firm enjoyed the concession, one that did not respect the cartel, Brazil might have developed an electrical machine industry much sooner than it did.113 Postwar nationalism was in fact a rather conservative force aimed more at

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foreign merchants (viewed as price gougers) and foreign workers (seen as anarchists) than at foreign capitalists. Although Brazil's specialization as a raw material exporter was put into question and public economic assistance became viewed more favorably, the state was still assigned a subsidiary supportive role. No influential group called for aggressive state entrepreneurship. Consequently, the corporatist efforts launched during or directly after the war did not set strong precedents. State control of exchange transactions, exports, and federal trade contracts with other governments (France, Italy, and Belgium) ended soon after the war. So too did the bulk of federal price controls that had begun during the war, though the Comissariado de Alimentação Pública continued in truncated form until 1926. The National Council of Commerce and Industry, created in 1923, brought together representatives from government and commercial, financial, and industrial organizations to plot out economic policy; it had little impact, however.114 Even some of light industry's earlier victories became endangered. In 1919 Epitácio's minister of finance responded to rising prices at home and abroad by attempting to cut tariff protection an average of 20 percent. Industrialists from the Federal District, São Paulo, and Minas joined together to defeat the proposal. Another such attempt in 1925 also went down to defeat. Tariff protection fell, nonetheless, in the 1920s because the sudden jump in import prices after the war was not accompanied by a tariff revision. Some textiles that were supposed to pay 60 percent duties in reality paid only half of that. The only substantial change in the tariff structure came in 1928 with regard to the ailing textile industry.115 Most of the state assistance to manufacturing after the war was unintentional. The rapid expansion of the money supply in the early 1920s stimulated credit markets. Even though the Carteiro de Redesconto concentrated its resources in the defense of coffee, money's velocity increased. The monetary decompression of Bernardes and Washington Luís stifled capital markets, but the Banco do Brasil's rediscount facilities alleviated some of the tension. The fall of the milréis, at first unintended then provoked by the Caixa de Estabilização, protected national industry. Inflation, which by 1923 had doubled prices from the 1909-1918 average, drove down some real wages. The defense of coffee siphoned some capital away from industry, but it also helped the real GDP virtually double between 1918 and 1928, thus creating a larger home market. It also improved Brazil's terms of trade, thereby facilitating capital imports.116 Foreign investment played a substantial part in industry's growth after the war. Indeed, it was in the period after 1910 that most foreign firms began operations in Brazil. One study has found that 60 percent of the completely foreign firms functioning in Brazil in 1968 had been founded between 1911 and 1932. It is true that only 19 percent of the foreign corporations initiated during the Republic were industrial, but they played an increasingly

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important part in the manufacturing sector. One British observer noted in 1929, "Every year sees more factories established with foreign capital."117 This was indirectly a result of public policy. Seducing foreign capital had long been a public goal. As Washington Luís said in 1928, "To attract, retain, and nationalize their [foreigners'] gold and their people is the problem of modern Brazil."118 Tax exemptions and special concessions attracted some companies, but most were enticed by the growing internal market, the tariff that protected their Brazilian factories from foreign competition, and the opportunity to purchase national companies inexpensively because of the milréis's decline. U.S. investors led the way in industrial investments. After the Federal Reserve Act allowed U.S. banks to establish abroad and the Edge Act encouraged foreign investment, there was a mass exodus of venture capital. U.S. industrial investments in Brazil rose from about $50 million in 1918 to $194 million in 1929. This reflected the spurt of activity of U.S. capital in manufacturing all over Latin America. Although U.S. capital did not overtake total British investment in Brazil, as it did in most of the rest of the hemisphere, in the industrial sphere U.S. corporate capital was greater than British. In fact, North Americans were buying up British firms in Brazil.119 Multinational firms were also beginning their invasion. Thirteen of the fifteen U.S. branches in Brazil in 1930 were established after the war. Many of the new enterprises simply added "do Brasil" to their name and served more as trading companies than as manufacturers.120 General Electric manufactured light bulbs but imported all complex items. Ford and General Motors had assembly lines that produced a few selected parts. Such branch operations had limited benefits for Brazil. There were few forward or backward linkages in Brazil because of a high import component; they trained few Brazilians for skilled work and even fewer for management; they developed no new technologies, but rather kept the country dependent on machinery already outdated in the most industrialized countries; they often repatriated profits rather than reinvesting in the country; and they subordinated their Brazilian branches to the companies' international strategy rather than to the needs of the Brazilian economy.121 Nonetheless, these companies did contribute to the productive capacity of Brazilian industry and increasingly manufactured in Brazil. In 1933 the capital of U.S. branch plants in Brazil was $47,165,000. These firms employed seventy-five hundred persons.122 The British, Germans, and French also established factories. The Germans took second place in industrial investments largely because of three large breweries and some foundries. British industrial capital accounted for well under 1 percent of total investment, but they still owned some of the country's largest textile and flour mills, foundries, match companies, and a shoe company. French capital was even less apparent in manufacturing. It was concentrated in

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sugar refining, textiles, and pharmaceuticals. The principal foreign investors in manufacturing were probably the Portuguese, Italian, German, and Spanish immigrants, who owned a substantial part of the country's light industries. They usually were small-scale concerns employing outmoded technologies.123 The Limits of Industrialization There is no doubt that Brazil underwent substantial industrialization during the First Republic. The country became virtually self-sufficient in textiles, clothing, shoes, and food items, which together constituted about 60 percent of all industry. Real GDP grew at over twice the rate of the export economy between 1889 and 1930. Given the decline of the tertiary sector during the period, industry grew faster than exports. According to the governor of São Paulo, industrial production almost doubled between 1925 and 1929. The Jornal do Commércio, generally unfavorable to industry, estimated that industrial production equaled 43 percent of total agricultural output in 1927. Wileman's, also not a strong industrial advocate, calculated that Brazil's factory capital was worth almost 10 percent more in 1927 than total agricultural and mineral output and 77 percent of the value of all farm property. Industrial employment more than quadrupled during the Republic and its percentage of the total work force tripled. Industry also gained a more important place as a source of revenue; import and export taxes fell while the federal consumption tax and the state industrial taxes grew.124 There was development as well as growth. Between 1907 and 1919, the only years for which there are even semicomplete data, the horsepower of factories tripled and the horsepower per worker nearly doubled. For the whole Republic the advance was obviously more dramatic. By 1920 there were 959 factories in the country that employed over five hundred persons, 411 that employed one thousand, and 94 that hired over five thousand workers. The largest sector, textiles, became so concentrated that 29 of the existing 354 firms in 1927 had 62 percent of the spindles, 53 percent of the looms, and produced 50 percent of output. The composition of imports also showed development. Capital goods rose from 9 percent of imports in 1901— 1910 to 14 percent in 1920-1928, raw materials rose from 47 percent to 54 percent, and consumer goods declined from 35 percent to 21 percent.125 These gains were in part the result of state policy, not just the multiplier effect of an expanding export sector. The high tariff and low milréis afforded essential protection. The large money supply eased credit, the development of the railway system widened the internal market, and the defense of coffee enhanced domestic capital accumulation. Low taxes also helped industrialists amass capital. The lack of enforcement of the few existing labor laws, the encouragement of immigration to enlarge unemployment

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reserves, and police persecution of labor unions kept wages low and profits high. The cosmopolitan state's guarantee of the sanctity of foreign capital and the absence of restrictions on profit repatriation together with low taxes and the tariff barrier increasingly attracted foreign manufacturers. But whereas public policies fostered the growth of light manufacturing, they inhibited the rise of a dynamic, vertically integrated modern sector. In 1930 Brazil's per capita industrial output was only one-sixth of Argentina's total, one-half of Chile's, and two-thirds of Mexico's.126 There was no state planning nor any effort to coordinate the development of complementary industries. Except for a few sectors deemed vital for the national defense, the market rather than the state determined the pace and shape of industrialization. The state stepped in only in times of crisis to aid industries that had already proven their market competitiveness. As a result, Brazil failed to take advantage of the possible linkages inherent in many of the raw materials it produced. Coffee exhibited few backward or forward linkages. Agricultural machinery, largely imported, was not extensively employed. In 1920 all of the foundries in the country employed about ten thousand persons and contributed less than 3 percent of industrial production. The greatest backward linkage was the railroad but, as discussed, it imported most inputs. Coffee had a few forward linkages in production for home use but the 1920 census found only three thousand persons employed in roasting and milling. The technology was lacking for the export of roasted coffee.127 Rubber and cocoa also received little attention. Although the federal government had granted a number of concessions with profit guarantees and tax exemptions to attract producers of rubber goods, the efforts failed. In 1907, at the height of the rubber boom, only two companies, with only 18 workers, were engaged in manufacturing rubber goods. By 1920 eleven companies employed a mere 298 workers in production worth just 3,453 contos. Cocoa, in chocolate and candy factories, employed 3,467.128 Crops directed to the internal market demonstrated far more forward linkages. Sugar, cotton, livestock, tobacco, and maté fed most of the country's important industries. But these industries, many of which used unsophisticated technologies, produced few backward linkages. For example, over 85 percent of all shoe factories in 1920 were not mechanized. The total horsepower of the entire sector was only 1,120. The most capital-intensive sectors, textiles, frozen meat, sugar refining, and beer brewing, imported the majority of their machinery. The tariff facilitated foreign purchase by exempting capital-goods imports from duties. The national capital-goods industry, as a result, remained undercapitalized and back-ward.129 The capital-goods industry, like other basic industries, suffered from inadequate state assistance. It required large capital infusions, yet, despite the growing concern with steel, oil, cement, and caustic soda production, no

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public development bank was founded during the Republic. Indeed, the one federal institution with sufficient assets and the administrative capacity to offer industry long-term financing, the Banco do Brasil, was specifically prohibited from such loans after 1905. Epitácio Pessoa's attempt to establish a national mortgage bank, in part to lend to factories, was thwarted by the nationalist Arthur Bernardes because of a fiscal crisis. The Banco do Estado de São Paulo channeled its funds primarily into agriculture. Consequently, despite notable gains in some basic industries, the sector remained underdeveloped and incapable of spurring self-sustained industrial growth. Coal output multiplied thirteen times between 1888 and 1920 but remained completely insufficient. Although domestic pig iron and steel ingot production met three-quarters of Brazil's needs by the end of the Republic, rolled steel met only 5 percent of domestic demand. Cement manufacture, which only got under way in 1926, supplied 40 percent of the country's consumption by 1930. Petroleum had yet to be discovered in Brazil. The one bright spot was electrical power, which rose from 1,267 kilowatts to 778,802 during the Republic.130 Electrical power as well as many other heavy industries had expanded in good part because of foreign capital. Federal and state government strove to attract foreign investment to increase national productive capacity. Foreign firms often received special treatment because of greater assets and technology (and their ability to bribe Brazilian politicians).131 This reliance on European and North American corporations meant that Brazil was not an active participant in the second Industrial Revolution. The chemical, electrical machine, and automobile industries were only in the nascent stage in Brazil, although they spearheaded development along a wide front abroad. The few factories that existed were principally assembly plants. Foreign companies were legally treated as Brazilian firms; there were few efforts to compel them to conform to the interests of the Brazilian economy by, for instance, introducing advanced technology. Nor did the Brazilian state lay the foundations for native technological advances, as education received paltry sums and research and development were not subsidized. The industrial policies of the republican state reduced Brazil's dependency in the sense that many goods formerly imported were now produced within the country. It was the location, not the nationality, of the factory (except for a few sectors of strategic importance) that concerned Brazil's dominant class and politicians. Unfortunately, Brazil industrialized by substituting imports already far along the product cycle. They were less profitable, had fewer linkages, and were less dynamic than leading industries such as automobiles and chemicals. Industry became larger but not more integrated and autonomous. The form of dependence changed. Now the country relied on the import of foreign capital goods and parts, and foreign industrialists gained greater economic and political power within Brazil.

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Conclusion Brazil underwent substantial import-substitution industrialization during the First Republic because of state policy and the impetus of expanding exports. There was a growing consensus that factories were important to the national economy. Although industrialism waxed under Floriano and Afonso Pena and waned under Prudente and Epitácio, all presidents recognized that manufacturing had a vital role. It benefited the Treasury by providing tax revenues and helping Brazil's balance of payments, encouraged urban peace by providing greater job opportunities, rewarded planters and ranchers by opening markets for their raw materials, and protected the country as a whole by strengthening the national defense through self-sufficiency in vital materials. Industrial policies were forged less by class conflict than by accommodation. Native planters and merchants generally acknowledged industry's importance. They were not guided by blind adherence to free trade; many of them invested in industry or recognized the interests they shared with industrialists. Industrialists, in return, conceded the primacy of the export sector. Foreigners played an ambivalent role. On the one hand, wholesale importers often fought protective duties and a depreciated milréis and even, on occasion, purchased Brazilian companies just to dismantle them. Foreign financiers occasionally stipulated that products acquired with their loans be purchased in their home country. The United States signed trade treaties that reduced duties on industrial imports into Brazil. International cartels prevented the manufacture in Brazil of many sophisticated goods.132 On the other hand, foreigners sold and financed much of the machinery necessary to construct Brazil's factories; they also provided much of the electricity to run them. Additionally, they licensed techniques and trademarks to national companies, produced goods in Brazil, and by the 1920s financed national Brazilian industries through bonds on the London Stock Exchange.133 Ironically, it was the general Brazilian acceptance of the necessity of industry that inhibited the industrialization drive. To be sure, Brazil's poverty, scarcity of liquid capital, and the attractiveness of agriculture limited the possibilities for industry. But the nature of public policy also retarded development. Because industry grew up in the shadow of agriculture, industrialists struck an alliance with planters to gain concessions from the state. They did not assert a vision that fundamentally challenged the dominant conception that Brazil had an agricultural vocation. It was the industrialists themselves, for example, who were the principal opponents of a national capital-goods industry; they preferred to import machinery. The middle class, far from actively championing a modern industrial nation, was the most vocal critic of protective duties. The industrial working class was

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too small and disorganized to force state action; its most politicized sector was organized by anarchists who struggled to smash the state, not strengthen it. Because industrialists could not speak out in a strong, independent voice, but rather fell back on their agricultural allies, the state generally passed measures to assist manufacturing only when the measures also aided other sectors. Indeed, most state action on industry was actually targeted at agriculture or the Treasury. Industry, therefore, remained relatively small and backward. It had developed in the interstices of the export economy; public policy ensured that it would remain there.

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6. Conclusion

By 1930 the Brazilian state played a considerably more important part in the economy than has generally been recognized. State spending was higher than in the subsequent regime and a substantial share of the country's banks, railroads, shipping lines, and communications network had come under state ownership. At the same time, public institutions heavily influenced credit, the exchange rate, and, through the defense of coffee and import tariffs, international commerce. Getúlio Vargas inherited in 1930 rather robust, vigorous public institutions, not the frail skeleton that historians have often noted. But the object of this study is not simply to revise the standard periodization and reduce the significance of the 1930 revolution by moving the origins of state economic interventionism back into the Republic.1 Rather, I should like to revise somewhat the popular image of the oligarchic state and the interplay of forces in civil society behind it. In Brazil the growth of state economic activity was not caused by the breakdown of the export economy during the Depression of the 1930s nor by industrialization and the formation of politicized middle and working classes, as most students of Brazil have argued; instead, it was a product of the export economy itself. The republican state was not only more economically energetic than is customarily recognized, it was also more centralized. The federal government had far greater income, expenditures, and armed forces than all of the states combined. It also controlled far more state enterprises, such as banks, railroads, ships, and telegraph lines, than did the states. Moreover, its legal domain, particularly over the international sector, was also far greater. Given that the export planters of the hegemonic Center-South had made federalism the principal plank in their program, does centralization imply that they were in fact not in command? To some extent, Joseph Love is correct when he argues that the federalist system awarded the states sufficient powers that they were willing to acquiesce in some centralization.2 In other words, although the republican state was in fact substantially more

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centralized than Brazilian historiography has usually acknowledged, it nonetheless was one of Latin America's most decentralized regimes. Besides, the federal government's concentration of powers was not so much a result of increasingly powerful producers for an ever more complex internal market demanding more state coordination nor of contending classes calling for greater social services in return for their vote. Rather, its relatively large economic presence derived from its efforts to represent and defend the export economy internationally and maintain a political accord in a setting of little internal integration and sharp regional differences in articulation with the world system. But although the dominant classes of both the richest and the poorer states accepted the level of federal centralization, they did not necessarily approve of it. Neither coffee planters as a class nor Paulista fazendeiros alone commanded the state with impunity. They were not in "absolute control of the nation," as Burns has maintained.3 First, even within São Paulo and Minas Gerais, the wealthiest planters did not run the government. Instead they were represented by politicians who were motivated by reasons of state as well as by class allegiances.4 Second, there were sharp differences between the coffee-producing states, particularly São Paulo and Minas Gerais, based not only on personality differences but on their varying relations to the world economy. Clashes over the defense of coffee and monetary policy demonstrate the serious nature of the rift. Because Paulistas often did not get their way when Mineiros were in office, they clearly did not always control the federal government. Their demands for a depreciated milréis or for federal funding of the defense of coffee were frequently ignored. They also received far less back from the Federal Treasury than they paid in. Paulistas may have received what they neededfromthe union, as Love argues, but they certainly did not get what they wanted. Ironically, it was primarily during the tenure of Paulista presidents Prudente de Morais, Campos Sales, Rodrigues Alves, and to a lesser extent Washington Luís that Paulista calls for federal assistance to coffee were least heeded. These presidents even acted against their own interests as planters. The ability of politicians to refuse aid to the country's apparently hegemonic class does not mean that the state was above and independent from the forces of civil society. The Republic was not ruled by the bureaucratic caste of a patrimonial state. True, much of the struggle for political power was over the distribution of the patronage of office to family and friends, but although Brazilian bureaucrats fell short of the ideal type of modern administrator, they tended to be well trained for their area of service and professionally competent. They were guided by reasons of state as well as by the needs of their supporters. State banks were profitably and efficiently run, as were many public railroads. Some of the enterprises, especially the Banco do Brasil, were manifestations of state capitalism. But

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they also acted to subsidize the private sphere. State administrators had social, political, and economic ties to the dominant class. More important, the state's revenues depended directly or indirectly on the export sector. State administrators are more aptly seen as "a committee for managing the common affairs of the whole bourgeoisie," in Marx's terms, than as an independent, self-interested estate. Public officials broke with planters at various times because as representatives of the nation they had to tend to the long-term interests of the system rather than the short-term needs of individual class fractions. This is not to say that they necessarily possessed a greater vision of the long-run demands of capitalist reproduction. Political and economic structures rather than ideological voluntarism pushed state policy along. Indeed, economic liberalism, albeit a more flexible variety than usually conceded, continued to be the dominant ideology throughout the entire Republic. Interventions were the products of rescue operations caused by economic crises rather than of developmental planning.5 Although the state's proper economic role was gradually redefined, interventions continued to be seen as efforts to salvage the laissez faire export model. There was certainly no revolution from above. Instead, an ever-widening gulf between theory and practice arose. The primary contribution of the 1930 revolution was not to insert the state into the economy, but to conform the dominant ideology to the reality of state policy. The growth of state economic participation in Brazil was no more the result of the demands of new social classes or class fractions than of state administrators with an enlightened ideology. Unlike in neighboring Uruguay, Brazil's urban middle and working classes were too weak to force many concessions. Their main gains were relatively low-priced essential goods and train fares. Social services and welfare legislation were woefully inadequate. Nor was the peasantry responsible for inducing any notable public interventions. Within the bourgeoisie most fractions were subordinated to the interests of the export economy because they agreed on its importance as the motor of the economy. There were few clashes that would have allowed the state political space to maneuver. Because of their perceived mutual dependence on the external sector, agriculture, commerce, finance, and industry were for the most part complementary. Even as the domestic market grew and producers for that market gained political strength, no serious challenge to the dominance of exporters was mounted. Industrialists, for instance, were content to remain in agriculture's shadow and profit from light industries that substituted former imports. They did not demand that the state restructure the economy. The major nonexport agricultural producers sold primarily to the Center-South and realized that the prosperity of the market depended on the export sector. When they benefited from federal policies

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such as tariffs, railroad expansion, or a depreciated milréis, it was usually as a side effect of policies oriented toward exporters. Even though the state did refrain from complying with the demands of coffee planters on a number of important occasions, it nonetheless tended to reward principally the rich and influential. The state's relative autonomy from the will of fazendeiros is explained by the major role foreign investors played in the Brazilian economy more than by contending class interests within Brazil. Most studies of state autonomy have focused on advanced capitalist states and hence have concentrated on domestic forces; foreigners are viewed as exogenous. Even when the issue of autonomy is taken up in Third World countries, it is usually during times of rapid industrialization, and populist Bonapartism or military authoritarianism is stressed. It is generally assumed that in export economies foreign influence limits the state's political space. As Nora Hamilton has put it, "In peripheral social formations the possibility of state autonomy would be positively related to a weakening of pressures from core capitals or states (due to international crises and/or internal crises within the relevant core formations)."6 In Brazil, however, ties to European and North American capital had ambivalent effects on state autonomy. It is true that, on the one hand, loans allowed foreign bankers to exercise a great deal of control over Brazil's finances, as evidenced by the 1898 Funding Loan, and over commodities, as occurred during the first two valorizations of coffee. European capitalists also were able to set limits on Brazilian state activity by manipulating the country's credit rating. Many state projects were aborted in the 1920s, for instance, because of weak finances and foreign disapproval. Similarly, nationalized railroads almost always received adequate compensation for fear of the foreign repercussions. Foreign governments, particularly the United States, also affected Brazil's control over international trade. They either threatened tariff retribution if Brazil's duties on some imports were not dropped (as in 1890), seized the valorization stock (as did the Germans in 1917 and the North Americans threatened to do in 1912), or refused Brazilian stocks a quotation on the Paris stock market (as the French did in 1906). On the other hand, foreign financiers provided the loans to permit the federal and state treasuries some independence from national taxpayers. The divergences between the state and planters usually occurred when state administrators concluded that the long-run credit of Brazil abroad was more important to sustaining the growth of the export economy than were the immediate necessities of nationals. The state strove to maintain the country's position in the world economy rather than just acting in the interest of one class. Europeans and, later, North Americans also provided the funds to nationalize railroads, establish state banks, and wrest control of the coffee

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market from foreigners. Foreigners were not monolithic and clearly not engaged in a conspiracy to open the economy to foreign control, as the most simplistic of dependistas would argue. Each actor simply wanted to maximize profit and minimize risk, even if that harmed other foreign firms and benefited the Brazilian state. And state administrators of the oligarchic regime were perfectly willing to employ the funds for nationalistic purposes. This willingness became more marked after World War I, when the Rothschilds lost their monopoly position as Brazil's foreign agent and numerous international banks competed to place loans in Brazil. Economic nationalism was not a consequence of the subordination of the oligarchy and the Depression, as has frequently been asserted, but rather a product, particularly in banking, coffee, railroads, and basic industries, of the export economy.7 With the assistance of foreign capital, the Brazilian state was able to relegate British, North American, French, and German capitalists to minor positions in railroads, banking, and the coffee trade, long the most dynamic areas of the export economy. Thus Immanuel Wallerstein's observation that one of the fundamental dynamics of the world system is that "the strengthening of the state machineries in core areas has as its direct counterpart the decline of the state-machineries in peripheral areas" requires modification.8 The Brazilian state was not able to use foreign capital to break the bonds of dependency, however. To be sure, important sectors were nationalized. But because the state intervened in the economy on an ad hoc basis in times of crisis to rescue the export economy, Brazil was in fact drawn closer to the world economy. In the absence of a dynamic industrial bourgeoisie or autonomous, far-sighted bureaucracy, Brazil continued to depend on the world economy, not on the state, for resource allocation. The state continued to concern itself principally with economic regulation rather than with promoting production, as later regimes would do. Rather than a rupture, there was an evolution of the nature of Brazil's dependency, which reflected structural changes in the world economy. International trade became less a central part of Brazil's economy, as the home market and domestic production for the market expanded. Between the 1890s and the 1920s, exports fell from 26 percent of all national production to only 15 percent Imports declined similarly. The state, consequently, relied ever less on taxes on international commerce to sustain itself. Import duties' share of total federal revenues declined from 60 percent in the 1890s to 39 percent in the 1920s. The states also began to tax internal production more than exports. Foreign loans and direct investment, however, came to occupy a central place in Brazil's economy. The foreign debt grew more than eightfold during the Republic. Whereas in 1889 the public foreign debt totaled only threequarters of the internal debt, by the 1920s it more than doubled the internal

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debt. The foreign debt grew more than 50 percent faster than the GDP between 1889 and 1930. More significantly, the cost of servicing the debt more than doubled as a portion of exports betwen the 1890s and the 1920s. 9 The burden of the payments became so onerous that from 1925 on all trade surpluses were negated by the cost of servicing the foreign debt, despite the prosperity brought to coffee by the Permanent Defense during many of those years. Foreign direct investment principally complemented the export sector, as, despite the surge of U.S. and European factories after the war, industry was still a relatively small component of foreign capital in 1930. As a result, although the state gained a measure of autonomy relative to export planters through foreign loans and the growing internal sector, the difficulty in repaying the loans forced a stress on exports, which guaranteed that fazendeiros would maintain much of their influence. In many ways the Brazilian experience resembled that of the rest of Latin America before 1930. Most countries had economies based on the export of one or two principal raw materials; most had substantial foreign investment relative to domestic investment. They were mainly rural, poor, and dominated by oligarchies. Their states encouraged private investment, especially foreign capital, through concessions and tax incentives. They concentrated on the export infrastructure—railroads, ports, and banking— and occasionally intervened in international commerce. Some state enterprises were begun: railroads in Argentina, Colombia, Mexico, and Uruguay; banks in most countries; public utilities in Uruguay; petroleum in Argentina. But although Brazil's state was not unique, it was one of the most economically active. The Brazilian regime during the First Republic was simultaneously energetic and decentralized compared to the rest of Latin America. It was as much dominated by an export oligarchy as any Latin American country, and was as ardent a champion of liberalism. What was special about Brazil? The country was sufficiently enticing to attract massive foreign investment (in absolute terms, it was second in Latin America). Foreign capital helped build the country's infrastructure and provided the state with vital resources. Brazil also enjoyed a strong national bourgeoisie, as coffee, sugar, and cocoa planters were nationals. And agriculture had important economic linkages that built the internal economy and domestic power base. In addition, Brazil's history of accommodation rather than violent revolts dating from its unique independence process and imperial regime meant that it had one of Latin America's most consolidated states. It used foreign capital but did not depend on it for survival. However, the Brazilian economy between 1889 and 1930 suffered serious cyclical recessions because of its close ties to the world economy. Crises demanded public rescues, which often left the state with ownership of important enterprises such as the Banco do Brasil, Lloyd Brasileiro, and numerous railways.

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Monetary and fiscal policy also responded to the downturns. In sum, the Brazilian economy's successes provided the capital to make state intervention possible; the state's strength made economic action feasible; and recurring recessions made public involvement necessary. The paradox of the liberal regime in Brazil was that efforts to transfer the liberal model designed for European countries to a Latin American export economy carried within them the seeds of the model's destruction. The state broke with planters on important issues because of its commitment to the long-run health of the export economy. It undertook nationalist measures to make Brazil attractive for foreign investors, and in fact European capital financed many of the nationalizations. The state interceded in the marketplace so that it could rescue the laissez faire model. The Brazilian experience between 1889 and 1930, then, suggests that the state economic interventions, rather than being the results of the breakdown of the export economy, were a product of the export economy itself.

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Notes

The following archives and papers were consulted but do not appear in the notes: Estado de São Paulo Archive, São Paulo Great Britain, Foreign Office, Annual Reports from the Embassy in Rio de Janeiro, microfilm José Antônio Saraiva Archive, IHGB, Rio de Janeiro José Carlos Rodrigues Archive, Biblioteca Nacional, Rio de Janeiro United States, Department of State, "Dispatches from U.S. Consuls in Pará," 1891-1894, NA, Records of the Department of State, RG 56, microfilm , "Dispatches from U.S. Consuls in Pernambuco," 1890-1894, NA, Records of the Department of State, RG 56, microfilm , "Dispatches from U.S. Consuls in Rio Grande do Sul," 1891-1895, NA, Records of the Department of State, RG 56, microfilm , "Dispatches from U.S. Consuls in Rio de Janeiro," 1890-1894, NA, Records of the Department of State, RG 56, microfilm , "Dispatches from U.S. Consuls in São Paulo," 1891-1894, NA, Records of the Department of State, RG 56, microfilm I wish to thank the editors of Hispanic American Historical Review for permission to use thefiguresfrom "State Intervention in a Liberal Regime," published in vol. 60 (1980): 593-616, and some passages from "The State's Contribution to the Development of Brazil's Internal Economy, 1850-1930," published in May 1985. 1. Introduction 1. For authors who see 1930 as the starting point of state interventionism, see Werner Baer, Isaac Kerstenetsky, and Annibal Villela, "The Changing Role of the State in the Brazilian Economy," World Development, no. 1 (November 1973): 2324; John W. F. Dulles, "The Contribution of Getúlio Vargas to the Modernization of Brazil," in The Shaping of Modern Brazil, ed. E. Baklanoff, pp. 52-54 (Baton Rouge: Louisiana State University Press, 1969); E. V. K. FitzGerald, "Some Aspects of the Political Economy of the Latin American State," Development and Change 7 (1976): 119-133; Octávio Ianni, Estado e planejamento econômico no Brasil 1930-1970 (Rio de Janeiro: Civilização Brasileira, 1977), pp. 4, 13, 60; Wilson Suzigan, "As empresas do governo e o papel do estado na economia

170 Notes to pages 2-3 brasileira," in Aspectos da participação do governo na economia, ed. Fernando A. Rezende da Silva et al., pp. 77-107 (Rio de Janeiro: IPEA/INPES, 1976); Fernando A. Rezende da Silva, "A evolução das funções do governo e a expansão do setor público brasileiro," Pesquisa e Planejamento 1 (1971): 235-282. 2. Ε. Bradford Burns, A History of Brazil, 2d ed. (New York: Columbia University Press, 1980), p. 375. 3. André Gunder Frank, Lumpenbourgeoisie, Lumpendevelopment (New York: Monthly Review Press, 1974), p. 63. 4. Luís Carlos Bresser Pereira, Estado e subdesenvolvimento industrializado (São Paulo: Editora Brasiliense, 1977), p. 109. 5. Hélio Jaguaribe, Economic and Political Development: A Theoretical Approach and a Brazilian Case Study (Cambridge: Harvard University Press, 1968), p. 138. 6. Celso Furtado, The Economic Growth ofBrazil: A Survey from Colonial to Modern Times, trans. Ricardo de Aguiar and Eric Drysdale (Berkeley & Los Angeles: University of California Press), p. 176. 7. Bresser Pereira, Estado e subdesenvolvimento, p. 115. 8. Claudio Véliz, The Centralist Tradition ofLatin America (Princeton, N. J.: Princeton University Press, 1980), p. 183. 9. Robert Hayes, The Brazilian World (St. Louis: Forum Press, 1982), p. 29. 10. Frank, Lumpenbourgeoisie, p. 70. 11. See the discussion of dependency theory in the introduction to Ronald H. Chilcote and Joel C. Edelstein, eds. Latin America: The Struggle with Dependency and Beyond. (New York: John Wiley & Sons, 1974). 12. João Manoel Cardoso de Mello, O capitalismo tardio, Contribuição à revisão crítica da formação e do desenvolvimento da economia brasileira (São Paulo: Editora Brasiliense, 1982); Furtado, Economic Growth; J. F. Normano, Brazil: A Study in Economic Types (Chapel Hill: University of North Carolina Press, 1935); Caio Prado Júnior, História econômica do Brasil (São Paulo: Editora Brasiliense, 1972); Wilson Cano, Raizes da concentração industrial em São Paulo (São Paulo: DIFEL, 1977); Warren Dean, The Industrialization of São Paulo, 1880-1945, Latin American Monographs, no. 17 (Austin: University of Texas Press, 1969); idem, Rio Claro: A Brazilian Plantation System, 1820-1920 (Stanford, Cal.: Stanford University Press, 1976); Richard Graham, Britain and the Onset of Modernization in Brazil, 1850-1914 (Cambridge: At the University Press, 1968); Stanley Stein, Vassouras: A Brazilian Coffee County, 1850-1890, 1957, reprint (New York: Atheneum, 1970); idem, The Brazilian Cotton Manufacture: Textile Enterprise in an Underdeveloped Area (Cambridge: Harvard University Press, 1957). 13. Werner Baer, Industrialization and Economic Development in Brazil (Homewood, 111.: Richard Irwin, 1965); Thomas Holloway, Vida e morte do convênio de Taubaté: a primeira valorização do café (Rio de Janeiro: Paz e Terra, 1978); Nathaniel Leff, The Brazilian Capital Goods Industry, 1929-1964 (Cambridge: Harvard University Press, 1968); Nícea Vilela Luz, A luta pela industrialização do Brasil, 1969, reprint (São Paulo: Alfa Omega, 1975); Maria Bárbara Levy, História da bolsa de valores (Rio de Janeiro: IBMEC, 1979); Antônio Delfim Netto, O problema do café, 1959, reprint (Rio de Janeiro: Fundação

Notes to pages 4-5

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Getúlio Vargas, 1979); Paulo Neuhaus, História monetáriado Brasil, 1900-1945 (Rio de Janeiro: IBMEC, 1975); Carlos Manuel Pelaez, "Análise econômica do programa brasileiro de sustentação do café, 1906-1945," Revista Brasileira de Economia (Oct.-Dec. 1971): 5-211; idem, and Wilson Suzigan, História monetária do Brasil: análise da política, comportamento, e instituições políticas (Rio de Janeiro: IPEA/INPES, 1976); Eulália Maria Lahmeyer Lobo, História do Rio de Janeiro (Do capital comercial ao capital industrial efinanceiro),2 vols. (Rio de Janeiro: IBMEC, 1978). 14. Laura Randall, A Comparative Economic History ofLatin America, 15001914, vol. 2: Brazil (Ann Arbor: University Microfilms International, 1977); Alberto Venâncio Filho, A intervenção do estado no domínioeconômico(Rio de Janeiro: Fundação Getúlio Vargas, 1968); Anníbal Villela and Wilson Suzigan, A política do governo e crescimento da economia brasileira, 1889-1945 (Rio de Janeiro: IPEA/INPES, 1973). 15. For example, see Fernando Henrique Cardoso and Enzo Faletto, Dependency and Development in Latin America, trans. Marjory M. Urquidi (Berkeley & Los Angeles: University of California Press, 1979), pp. 57, 69; FitzGerald, "Some Aspects of Political Economy"; Frank, Lumpenbourgeoisie, p. 63; Tulio Halperin Donghi, Historia contemporánea de América Latina (Madrid: Alianza Editorial, 1970), pp. 215, 216; Véliz, Centralist Tradition, p. 183. 16. Immanuel Wallerstein, "The Rise and Future Demise of the World Capitalist System: Concepts for Comparative Analysis," Comparative Studies in Society and History 16 (1974): 403. 17. Theotônio dos Santos, "Brazil: The Origins of a Crisis," in Latin America: The Struggle with Dependency and Beyond, ed. Ronald Chilcote and Joel Edelstein, pp. 430, 431 (New York: John Wiley & Sons, 1974); William Glade, The Latin American Economies (New York: Van Nostrand, 1968), pp. 232-236. 18. Nathaniel H. Leff, Underdevelopment and Development in Brazil, vol. 2: Reassessing the Obstacles to Economic Development (London: George Allen & Unwin, 1982), pp. 116, 117. 19. Raimundo Faoro, Os donos do poder; formação do patronato político brasileiro, 2 vols., 2d ed. (São Paulo: Editora Globo, Editora da USP, 1975); Richard Morse, "The Heritage of Latin America," in The Foundation of New Societies, ed. Louis Hartz (New York: Harcourt, 1964); Simon Schwartzman, São Paulo e o estado nacional (São Paulo: DIFEL, 1975); Hamza Alavi, "The State in Post-Colonial Societies: Pakistan and Bangla Desh," New Left Review 76 (1972): 59-82; Howard Wiarda, "Corporatism and Development in the Iberic-Latin World: Persistent Strains and Variations," The Review of Politics 36 (1974): 3-33; Fernando Uricoechea, O minotauro imperial, a burocratização do estado patrimonial brasileiro no século XIX (Rio de Janeiro: DIFEL, 1978). 20. Paul Baran and Paul Sweezy, Monopoly Capital: An Essay on the American Economic and Social Order (New York: Monthly Review Press, 1966); Nikolai Bukharin, Imperialism and World Economy, 1929, reprint (New York: Monthly Review Press, 1973); John Kenneth Galbraith, The New Industrial State (Cambridge: Harvard University Press, 1962); Gabriel Kolko, The Triumph of Conservatism (New York: Free Press, Macmillan, 1963); James Weinstein, The Corporate Ideal in the Liberal State, 1900-1918 (Boston: Beacon Press, 1968).

172 Notes to pages 5-7 21. Samir Amin, Le Développment inégal: essai sur les formations sociales du capitalisme périphérique (Paris: Editions de Minut, 1973); Alexander Gerschenkron, Economic Backwardness in Historic Perspective (Cambridge: Harvard University Press, Belknap Press, 1962); Martin J. Murray, The Development of Capitalism in Colonial Indochina (1870-1940) (Berkeley & Los Angeles: University of California Press, 1980), p. 22; Ellen Kay Trimberger, "A Theory of Elite Revolutions," Studies in Comparative International Development 7, no. 3 (1972): 191-207. 22. Diretoria Geral de Estatística (DGE), Anuário estatístico, 1908-1912 (Rio de Janeiro: Typ. da Estatística, 1917), ν. 2, p. xl; Roberto Santos, História económica da Amazônia (São Paulo: Thomas Queiroz, 1980), p. 236; The Tea and Coffee Trade Journal (February 1927), p. 152; V. D. Wickizer, Coffee, Tea and Cocoa (Stanford, Cal.: Food Research Center, 1951), p. 263. 23. DGE, Anuário estatístico, 1908-1912, v. 2, pp. 21, 100, 102, 116-118; Ministério da Agricultura, Indústria e Comércio, Economical Data about Brazil (Rio de Janeiro: Imprensa Nacional, 1916), ρ. 62; Joan Bak, "Cartels, Cooperatives, and Corporatism: Getúlio Vargas in Rio Grande do Sul on the Eve of Brazil's 1930 Revolution," Hispanic American Historical Review (HAHR) 63, no. 2 (May 1983): 257-259; Cano, Raizes, pp. 280, 284; José C. Gnaccarini, "A economia do açúcar," in Boris Fausto, ed., História geral da civilização brasileira (hereafter HGCB) (São Paulo: DIFEL, 1975), v. 8, p. 322; Thomaz Pompeo de Sousa Brasil, O Ceará no centenário da independência do Brasil (Fortaleza: Typ. Minerva, 1926), v. 2, p. 162; Ana Maria dos Santos and Sônia Regina de Mendonça, "Intervenção estatal e diversificação agrícola no estado de Rio de Janeiro (1888— 1914)," presented at ANPUH Meeting, Niterói, RJ., June 1979; John Wirth, Minas Gerais in the Brazilian Federation, 1889-1937 (Stanford, Cal.: Stanford University Press, 1977), p. 39. The exports as a percentage of GNP were calculated from DGE, Anuário estatístico, 1939-1940, p. 1357; and from Cláudio Contador and Cláudio Haddad, "Produção real, moeda e preços: a experiência brasileira no período1861-1970,"Revista Brasileira de Estatística 36 (1975): 432,433. Dennis Mahar calculates in "Fiscal Federalism in Brazil" (Ph.D. diss., University of Florida, 1970), p. 146, that federal revenues derived from taxes on foreign trade fell from 53.6 percent of all income in 1900 to 37.3 percent in 1930. In the states, foreign trade fell from 46.9 percent in the 1914-1916 period to 32.7 percent in 1930. 24. For example,AntônioPrado, among the largest coffee planters in São Paulo, was also president of the São Paulo railroad and of the Banco de Comércio e Indústria and a partner in one of the largest Brazilian export houses, Brazil's first modern meat packing house, and a glass factory. Other family members ran textile and paper factories. Import-export merchants also diversified. Francisco Matarrazo began importing lard, but soon branched out into general importing and exporting, established an empire by manufacturing a vast array of consumer durables and foodstuffs, and organized a bank. Francisco de Paula Mayrink founded and presided over five banks. He also established an immigrant colonization company in São Paulo, was president of six railroad companies, of the country's largest shipping company, the largest tram companies in Rio and São Paulo and Minas, and owned sugar andflourmills, textile factories, and coffee properties. Almanak Laemmert 1890, pp. 1212, 1222, 1311; 1891, pp. 1114, 1132; Dean, Industrialization, pp.

Notes to pages 7-11

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62-64; Francisco de Paula Mayrink Lessa, Vida e obra do Conselheiro Mayrink (Rio de Janeiro: Pongetti, 1975), pp. 70,73,113,117,118,123; Darrell E. Levi, A família Prado, trans. José Eduardo Mendonça, pp. 254-259 (São Paulo: Cultura 70, 1974). 25. For example, industrialist and banker Mayrink was one of the founders of the Engineer's Club and president of Rio's Commercial Association. There was also Gabriel Osório e Almeida, born to a Rio coffee family and a self-professed fazendeiro, who served as vice-president of the Industrial Center. The center's founder, Inocêncio Serzedelo Correia, also led a committee that drafted the Commercial Association's recommendations for tariff reform and was president of an insurance company. The Industrial Center itself reflected the diversity of interests exhibited by the elite, for it grew out of an imperial organization that centered around improving agricultural techniques. The two major business associations in São Paulo for most of the Republic mirrored this ambiguity: the Commercial Association, which represented industry and banking as well as commerce; and the aptly named Association of Commerce and Industry. The federal government manifested the same lack of sectorial distinction when it established the Ministry of Agriculture, Industry, and Commerce. Dean, Industrialization, pp. 121, 139,140; Associação Comercial do Rio de Janeiro, Commissão de revisão da tarifa aduaneira (Rio de Janeiro: Typ. Jornal do Commércio, 1903); A Defesa Nacional, no. 3 (1915), p. 180; Almanak Laemmert, 1890, p. 1578; Lessa, Mayrink, p. 125; José Carlos de Macedo Soares, A políticafinanceirado Presidente Washington Luís (São Paulo: Saraiva & Cia., 1927), p. 50; Hélio de Alcântara Avellar, História administrativa e econômica do Brasil, 2d ed. (Rio de Janeiro: FENAME, 1976), p. 273. 26. Dean, Industrialization, p. 32. 27. DGE, Anuário estatístico, 1939-1940, pp. 1293, 1304. 28. Ibid., Recenseamento, 1920, ν. 4, pt 5, tomo 1, pp. 4-5. 29. Steven Topik "Economic Nationalism and the State in an Underdeveloped Country: Brazil, 1889-1930" (Ph.D. diss., University of Texas, 1978), pp. 257320. See also Carlos Bakota, "Crisis and the Middle Classes: The Ascendancy of Brazilian Nationalism, 1914-1922" (Ph.D. diss., University of California at Los Angeles, 1973); and Paulo Sérgio Pinheiro, "Classes médias urbanas: formação, natureza, intervenção na vida política," in HGCB, v. 9. 30. Joseph Love, "Political Participation in Brazil, 1881-1969," Luso-Brazilian Review 7, no. 2 (1970): 9. 31. In 1920,17 percent of workers nationally were foreigners, 20.8 percent were under twenty-one years of age, and 36.5 percent were women: DGE, Recenseamento, 1920, v. 4, pt. 5, tomo 1, p. 4, 5; also v. 2, pt. 2, p. lxix. 32. Maurício de Lacerda, A evolução legislativa do direito social brasileiro (Rio de Janeiro: Editora Nova Fronteira, 1980), pp. 16, 17, 30, 48; Luiz Werneck Vianna, Liberalismo e sindicato no Brasil (Rio de Janeiro: Paz e Terra, 1978), pp. 52 61,77,81,83; Ranulpho Bocayuva Cunha, "Organização do trabalho livre e leis de proteção acidentes, seguros, pensões" in Livro do centenário da Câmara dos Deputados (1826-1926) (Rio de Janeiro: Empreza Brasil Editora, 1926), p. 381; Adolfo Afonso da Silva Gordo, A expulsão de estrangeiros (São Paulo: Espíndola, 1913), p. 21; DGE, Anuário estatístico, 1939-1940, p. 1428. 33. Congresso, Documentos Parlamentares, Legislação social, 3 vols. (Rio de

174

Notes to pages 12-20

Janeiro: Imprensa Nacional, 1919-1922), passim; Moniz Bandeira, Clovis Melo, and A. T. Andrade, O ano vermelho, a Revolução Russa e seus reflexos no Brasil (Rio de Janeiro: Civilização Brasileira, 1967); Leôncio Basbaum, Uma vida em seis tempos (memórias) (São Paulo: Alfa-Omega, 1976); Octávio Brandão, Combates e batalhas (São Paulo: Alfa-Omega, 1978), p. 252; Everardo Dias, História das lutas sociais no Brasil (São Paulo: Adaglit, 1962), pp. 292-308; John W. F. Dulles, Anarchists and Communists in Brazil, 1900-1935 (Austin: University of Texas Press, 1973), pp. 133, 540; Boris Fausto, Trabalho urbano e conflito social (São Paulo: DIFEL, 1977), pp. 217-223; Angela Maria de Castro Gomes, Burgesia e trabalho (Rio de Janeiro: Editora Campus, 1979), pp. 117-195; Marisa Saenz Leme, A ideologia dos industriais brasileiros, 1919-1945 (Petrópolis: Vozes, 1978), pp. 98-183. 34. The 1890 estimate is based on a British investment of about $336 million in 1850, according to J. Fred Rippy, British Investment in Latin America, 1822-1945 (Minneapolis: University of Minnesota Press, 1959), p. 150. The 1930figureis from Villela and Suzigan, Política do governo, p. 81. 35. Jornal do Commércio, Retrospeto commercial, 1929, p. 206. 36. Rui Barbosa, minister offinance,Afrânio de Mello Franco, senator, Epitácio Pessoa, president, all worked for foreign companies, and Alfredo Maia, federal minister of transportation, Jorge Tibiriça, governor of São Paulo, and José Paes de Carvalho, governor of Pará, all served as directors of foreign firms. Assis Chateaubriand, Brazil's leading newspaper owner, António Azevedo, leader of the federal Senate, and three other deputies all accepted payments from foreigners. For a greater discussion of this, see Topik, "Economic Nationalism and the State," pp. 39, 40; Rippy, British Investment, p. 152; Great Britain, Department of Overseas Trade, Stanley G. Irving, Report on Economic Conditions in Brazil (London: Department of Overseas Trade, 1930), pp. 21-22; Brazilian Review (26 November 1907), p. 1345;Congresso, Diáriooficial(24 May 1930), pp. 10829-10832; Dean, Industrialization, pp. 61, 62; Economist (14 September 1889), p. 1178. 37. M. F. J. de Santa-Anna Nery, Le Brésil en 1889 (Paris: Librairie Charles Delagrave, 1889), p. 450; DGE, Anuário estatístico, 1939-1940, pp. 1409,1412, 1418; Love, "Political Participation," p. 8. In Argentina the states enjoyed about 20 percent of the total, in comparison: Peter Smith, Politics and Beefin Argentina (New York: Columbia University Press, 1969), p. 22. 38. Calculated from Almanak Laemmert, 1889, pp. 116-120, and 1891, pp. 4751; and DGE, Anuário estatístico, 1939-1940, pp. 1298-1299. 39. Calculated from DGE, Anuário estatístico, 1939-1940, p. 1410; and Werner Baer, A industrialização e o desenvolvimentoeconômicodo Brasil (Rio de Janeiro: Fundação Getúlio Vargas, 1975), pp. 402-403. Real figures were obtained by using the deflator calculated by Contador and Haddad in "Produção real," pp. 434—435. According to Phyllis Deane and W. A. Cole, British Economic Growth, 1688-1969 (Cambridge: At the University Press, 1969), p. 333, Great Britain's national and local government spending constituted 9.9 percent of GNP in 1920; according to The Statistical History ofthe United StatesfromColonial Times to the Present (Stamford, Conn.: Fairfield Publishers, 1969), pp. 141, 711, U.S. federal receipts equaled 6.8 percent of GNP in 1919 and 4.2 percent in 1925. 40. Calculated from Statesman Yearbook, 1895, 1900, 1905, 1910, 1915,

Notes to pages 20-24

175

1920, 1925, 1930, passim. In 1912 Brazil's federal government surpassed the per capita spending of Japan and Switzerland among the more developed countries: DGE, Anuário estatístico, 1908-1912, v. 2, p. lxxi. 41. DGE, Anuário estatístico, 1939-1940, pp. 1422, 1424. 42. For the size of the bureaucracy, see table 5. For Brazil's population, see ibid., p. 1293. 43. Contadoria Geral da República, Balanço da receita e despesa da República dos Estados Unidos do Brasil para o exercício de 1921 (Rio de Janeiro: Imprensa Nacional, 1921), pp. 327-333; DGE, Recenseamento 1920, ν. 5, pt. 5a, tomo 1, p. xxx; Ministério da Viação e Obras Públicas, Inspectoría Federal das Estradas do Brasil, Estatística das estradas de ferro do Brasil (Rio de Janeiro: Soares, Dias & Co., 1920), pp. 92, 93; Lacerda, A evolução legislativa, pp. 59-60. 44. For one of the most eloquent contemporary attacks on the bureaucracy, see Tobias Monteiro, Funcionários e doutores (Rio de Janeiro: Livraria Francisco Alves, 1919). 45. Ministério da Fazenda, Tabela explicativa do orçamento da despesa de 1920 (Rio de Janeiro: Imprensa Nacional, 1920), passim; Contadoria Geral da República, Balanço da receita e despesa da República dos Estados, 1921, pp. 327-333; Lloyd Brasileiro, Relatório, 1919, p. 4; Ministério da Viação e Obras Públicas, Inspectoría das Estradas, Estatística, 1920, pp. 92, 93, 1929-1930, pp. 316-319; DGE, Recenseamento, 1920, v. 5, pt. 3, pp. 1-35. 46. For examples of official corruption, see J. A. Reed to H. L. Hunt, Rio, 5 December 1928, Percival Farquhar Archive, Biblioteca Nacional 98-1965 (hereafter PFBN); Correio da Manhã, Rio (15 May 1916), p. 1; Monitor Mercantil (2 February 1918), p. 176; Charles Gauld, The Last Titan: Percival Farquhar, American Entrepreneur in Latin America (Stanford, Cal.: Institute of HispanoAmerican and Luso-Brazilian Studies, 1964), pp. 144, 167, 168, 251, 252; Brazilian Review (10 January 1911), p. 34. For examples of office from political favor, see Raul Soares Archive, CPDOC, FGV, Rio de Janeiro (hereafter RS), 23.05.04/2; RS 23.05.10/1; RS 23.05.26/1; RS 23.01.18/1; RS 23.01.22/5; RS 23.02.09/5; RS 23.03.20/3; Afonso Pena Archive, Arquivo Nacional, Rio de Janeiro 6-1-2-550 (hereafter AP). Linda Lewin suggests in "Politics and Parentela in Paraíba" that the political struggle in Paraíba was over the distribution of public office to rival family-based groups rather than over more substantive policy differences. 47. Lacerda, Evolução legislativa, p. 54; Alcindo Guanabara, A presidência Campos Sales (Rio de Janeiro: Laemmert, 1902), pp. 298, 299; Monteiro, Funcionários, pp. 5-37, 90; Contadoria Geral da República, Receita e despesa, 1895, 1910. 48. Paulo de Andrade Martins Costa, Introdução à memória histórica da E. de F. Central do Brasil (1958), passim; Hélio Lobo, Lloyd Brasileiro, uma lição que fica (Rio de Janeiro, 1954), pp. 8-13; Banco do Brasil, Relatório, 1905-1930, passim. 49. João Moura Dunshee de Abranches, Governos e congressos da República, 2 vols. (Rio de Janeiro: M. Abranches, 1918), passim; Pedro Calmon, História do ministério da justiça, vol. 1 (Rio de Janeiro: Imprensa Nacional, 1972), passim; Ministério da Viação e Obras Públicas, Dados biográficos dos ministros 18611961 (Rio de Janeiro, 1962), passim; Ministério da Fazenda, Ministros da

176

Notes to pages 24-28

Fazenda, 1822-1972 (Rio de Janeiro, 1972), passim. 50. Alexandre José Barbosa Lima, Discursos parlamentares (Brasilia: Documentos Parlamentares, 1963), p. 4. 51. Joseph Love, "Um segmento da elite política brasileira numa perspectiva comparativa," in Centro de Pesquisa e Documentação de História Contemporânea do Brasil,Arevolução de 1930 (Brasilia: Editora Universidade de Brasilia, 1983), p. 56; Ministério da Fazenda, Ministros da fazenda, passim; Love, São Paulo in the Brazilian Federation, 1889-1937 (Stanford, Cal.: Stanford University Press, 1980), p. 338. 52. For theoretical formulations of the oligarchic state and applications, see Cardoso and Faletto, Dependency and Development', Octávio Ianni, A formação do estado populista na América Latina (Rio de Janeiro: Civilização Brasileira, 1975); Francisco Weffort, O populismo na política brasileira (São Paulo: Brasiliense, 1978). 53. Custódio de Mello, O governo provisório e a revolução de 1893 (São Paulo: Editora Nacional, 1938), p. 124; José Murilo de Carvalho, "As forças armadas na Primeira República: o poder desestabilizador," inHGCB, v. 9, p. 230; John Schultz, "The Brazilian Army and Politics: 1850-1895" (Ph.D. diss., Princeton University, 1973). 54. Jornal do Commércio, Retrospeto commercial, 1925, anexo; Heloísa Rodrigues Fernandes, "A força pública do estado de São Paulo, in HGCB, v. 9, p. 255; DGE, Anuário estatístico, 1939-1940, p. 1427; Love, Rio Grande do Sul and Brazilian Regionalism, 1882-1930 (Stanford, Cal.: Stanford University Press, 1971), p. 220; Murilo de Carvalho, "As forças armadas," p. 230. 2. The Financial System 1. Furtado, Economic Growth, p. 177. 2. DGE, Anuário estatístico, 1939-1940, pp. 1353, 1424; Ministério da Fazenda, Relatório, 1925, p. 246; Pelaez and Suzigan, História monetária do Brasil, pp. 445-448; Nery, Le Brésil en 1889, pp. 347-351,452; Levy, História da bolsa, pp. 107, 108,280; Ata da Seção do Conselho de Estado, Rio de Janeiro, 12 March 1885, IHGB, Coleção Instituto Histórico, pasta 55, lata 545; O. J. Plácido e Silva, Caixas econômicas federais e operações bancárias (São Paulo: Editora Rumo, 1930), pp. 12, 33, 66; Contadoria Geral da República, Balanço da receita e despesa para o exercício de 1888, p. 11; 1925, p. 248. 3. Contadoria Geral da República, Balanço da receita e despesa para o exercício de 1888, pp. 8, 9; Jornal do Commércio, Retrospeto commercial, 1906, p. 22. 4. Gustavo Henrique Barroso Franco, Reforma monetária e instabilidade durante a transição republicana (Rio de Janeiro: BNDES, 1983), pp. 48, 60. 5. Almanak Laemmert, 1889, pp. xvii, 1205-1222; Nery, Le Brésil en 1889, pp. 347-351; João Ribeiro, Bancos, memória apresentada ao Congresso Industrial de Minas Gerais (Juiz da Fora: Typ. Central, 1903), p. 48; Dean, Rio Claro, um sistema brasileiro, pp. 46-49; Carlos A. Hasenbalg, Clovis Brigagão, and Fernando José Leite Costa, O setorfinanceirono Brasil: aspectos históricos (Rio de Janeiro: Instituto Universitário de Pesquisas do Rio de Janeiro, 1970), pp. 82,117; Thomas Η. Holloway, "Migration and Mobility: Immigrants as Laborers and Landowners in the Coffee Zone of São Paulo, Brazil, 1886-1934" (Ph.D. diss., University of

Notes to pages 29-31

177

Wisconsin, 1974), p. 97; C. F. Van Delden Laerne, Brazil and Java: Report on Coffee-Culture in America, Asia and Africa to Η. Ε. the Minister of the Colonies (London: W. H. Allen, 1885), p. 212. 6. Ribeiro, Bancos, pp. 48-57; Manoel António Duarte de Azevedo, Considerações sobre o crédito real (Rio de Janeiro: Typ. Leuzinger, 1892), pp. 1116; Os projectos sobre bancos de crédito real (São Paulo: Typ. King, 1887) pp. 417; Banco do Brasil, Relatório de 1889 (Rio de Janeiro: Typ. Carioca, 1889), p. 121; L.R.O., Quatro mezes de administração financeira e idéias financeiras (Lisbon: Typ. Universal, 1890), p. 18; Ministério da Fazenda, Exposição de motivos sobre a situação financeira e idéias de reforma (Rio de Janeiro: Imp. Nacional, 1891), p. 9; idem, Relatório 1898, p. 554; Contract of Banco Nacional with Ministério da Fazenda, 2 October 1889, Casa Rui Barbosa, Pasta Banco do Brasil. 7. Amaro Cavalcanti, Resenhafinanceirado império (Rio de Janeiro: Imp. Nacional, 1893), p. 76. 8. DGE, Anuário estatístico, 1939-1940, p. 1307; Câmara dos Deputados, Anais, 1892, v. 5, pp. 348, 349. 9. Banco Hypotecário to Floriano Peixoto, 18 October 1893, Floriano Peixoto Archive, Arquivo Nacional, Rio de Janeiro, Caixa 8L, Pacote 5 (hereafter FP). 10. Ministério da Fazenda, Exposição de motivos, p. 10; R. Graham, Britain and the Onset of Modernization, p. 230; Charles Willis Simmons, Marshal Deodoro and the Fall of Dom Pedro II (Durham, N.C.: Duke University Press, 1966), p. 131; The Economist (23 November 1889):1495. 11. Examples of works lauding Rui's program are Pinto de Aguiar, Rui e a economia brasileira (Rio de Janeiro: Fundação Casa Rui Barbosa, 1973); Aliomar Balleiro, Um estadista no Ministério da Fazenda (Rio de Janeiro: Casa Rui Barbosa, 1952); Humberto Bastos, Rui, ministro da independência económica do Brasil (São Paulo: Editora Martins, 1951). 12. Rui Barbosa, Finanças e política da República (Rio de Janeiro: Comp. Impressora, 1892), pp. 18, 39, 42. 13. George Boehrer, Da monarquia à república (Rio de Janeiro: Ministério da Educação e Cultura, 1954), pp. 150, 162. 14. Lessa, Mayrink, pp. 27,49,54; Lery Santos, Pantheon fluminense, esboços biográficos (Rio de Janeiro: Typ. G. Leuzinger e Filhos, 1880), pp. 383-385. Joseph E. Sweigart, "Financing and Marketing Brazilian Export Agriculture: The Coffee Factors of Rio de Janeiro, 1850-1888" (Ph.D. diss., University of Texas, Austin, 1980), pp. 84, 85, has shown that the great majority of coffee factors in Rio were not tied to the land. So influential were stock speculators that, according to the British consul general (Rio de Janeiro, 27 February 1891, record group 675, Foreign Office), they secured Deodoro's election as Brazil's first president in February 1891 by bribing hesitant deputies. Two historians who have argued that there was a separatefinancial-commercialclass that dominated planters are Faoro, Os donos do poder, v. 1, p. 342; and Marieta de Moraes Ferreira, "A crise dos comissários de café do Rio de Janeiro" (M.A. thesis, Universidade Federal Fluminense, Niterói, 1977), p. 27. 15. Leis do Brasil, Decreto no. 165, 18 January 1890; Francisco de Paula Mayrink, Questãofinanceira,discurso proferido na sessão de 20 de novembro de

178

Notes to pages 31-33

1897 (Rio de Janeiro: Imp. Nacional, 1898), pp. 38-39. According to Diário oficial (30 January 1890), in CRB, Pasta, Banco dos Estados Unidos do Brasil (hereafter CRB, Pasta BEUB), industrialists opposed the measure. 16. Mayrink, Questãofinanceira,p. 42; Mayrink to Rui Barbosa, 22 August 1890, CRB, Pasta BEUB; Victor Viana, O Banco do Brasil: Sua formação, seu engradecimento, sua missão nacional (Rio de Janeiro: Jornal do Commércio, 1926), p. 609; María Bárbara Levy, "O Encilhamento," in Paulo Neuhaus, ed., Economia brasileira, uma visão histórica (Rio de Janeiro: Editora Campus, 1980), p. 227; João Pedro da Veiga Filho, Relatório apresentado a directoria da Associação Comercial de São Paulo (São Paulo: Typ. da Industrial de São Paulo, 1896), pp. 93,109; Felisbello Freire, História do Banco do Brasil (Rio de Janeiro: Typ. d'O Economista Brasileiro, 1907), p. 171; Mayrink to Rui Barbosa, 22 August 1890, CRB, Pasta BEUB; Ministério da Fazenda, Relatório, 1898, p. 554; Jornal do Commércio (10 June 1894), p. 5; J. Faro to Q. Bocayuva, Rio, 4 January 1892, Quintino Bocayuva Archive, CPDOC, FGV, Rio de Janeiro (hereafter QB), 891.03.31 cp; Ribeiro, Bancos, pp. 57, 73; João Pedro da Veiga Filho, Estudo econômico efinanceirosobre o estado de São Paulo (São Paulo: Typ. do Diário Oficial, 1896), p. 23. 17. Almanak Laemmert, 1890, p. 1207. 18. The growth of the money supply was not as large as this expansion of bank issues implies because the Banco da República was obliged to retire 170,781 contos of Treasury notes at the same time. Mayrink to R. Barbosa, Rio, 22 August 1890, CRB, Pasta BEUB; Memorandum on fusion of BEUB with the Banco Nacional, Rio, 2 December 1890, CRB, Pasta BEUB; Barbosa, Finanças, pp. 75-78,87,163; Freire, Banco do Brasil, p. 163; A. Pena to Manoel Pinto de Souza Dantas, Ouro Preto, 31 May 1893, AP 2-1.1.75. 19. A. Pena to Rodrigues Alves, Barbacena, M.G. 2 December 1891, AP 21.1.512. 20. Ministério da Fazenda, Exposição de motivos, pp. 11, 16, 32; Jornal do Commércio, Retrospeto commercial, 1891, p. 4; Viana, Banco do Brasil, p. 614; Afonso Celso de Figueiredo (Visconde de Ouro Preto), A década republicana (Rio de Janeiro: Comp. Typ. do Brasil, 1899), pp. 92, 94, 215. 21. Câmara dos Deputados, Anais, 1892, v. 3, p. 352. 22. Gazeta de Comércio e Finanças (5 December 1895), p. 2 23. June Hahner, Civilian-Military Relations in Brazil, 1889-1898 (Columbia: University of South Carolina Press, 1969), pp. 79, 19. For the opinion of senior officers, see the manifesto of thirteen generals in General Solon Archive, IHGB, Rio de Janeiro (hereafter GS), Lata 559, Pasta 30. 24. Inocêncio Serzedelo Correia, O problema econômico no Brasil, 1903, reprint (Rio de Janeiro: Fundação Casa Rui Barbosa, 1980), p. 5. 25. Joaquim Nabuco, A intervenção estrangeira durante a revolta de 1893 (São Paulo: Comp. Editora Nacional, 1939), p. 167. The movement centered in the Federal District, but there were also Jacobin clubs in Minas Gerais, Bahia, São Paulo, Sergipe, and Rio Grande do Sul (O Jacobino, 5 December 1894 and 13 April 1897), and Jacobin newspapers in Alagoas, Pernambuco, Rio Grande do Norte, and Amazonas. 26. Ministério de Negócios do Império, Relatório, 1888, p. 101.

Notes to pages 33-39

179

26. Ministério de Negócios do Império, Relatório, 1888, p. 101. 27. Ministério da Justiça, Relatório, 1892, p. 9; Rio News (17 January 1891). 28. Ministério da Fazenda, Relatório, 1892, p. 24; 1893, p. 68; 1894, p. 29; João Pandiá Calógeras, A política monetária do Brasil (São Paulo: Editora Nacional, 1960), p. 244. 29. Calculated from Pelaez and Suzigan, História monetária, pp. 401-402, using the deflator of Contador and Haddad, "Produção real," p. 423. 30. Presidente, Mensagem dirigida ao Congresso Nacional, 1916, p. 243; Brazil, Câmara dos Deputados, Anais, 1892, v. 3, p. 352; Jornal do Commércio, Retrospeto commercial, 1892, p. 9; Augusto Bulhões, Ministros da fazenda do Brasil 1808-1954 (Rio de Janeiro: Imp. Nacional, 1955), ρ. 108. 31. Ministério da Fazenda, Relatório, 1893, p. 72; Freire, Banco do Brasil, p. 193; Calógeras, Política monetária, p. 263; Ministério da Fazenda, Ministros da fazenda, pp. 112, 113. 32. Arlindo A. Leoni, Embargos n. 2,286: Henry Lowndes, conde de Leopoldina, Embargados: Banco do Brasil e a união federal (Rio de Janeiro: Typ. do Jornal do Commercio, 1918), pp. 9,10,13,17, 22,26; Lessa, Mayrink, pp. 93, 168, 169. 33. Furtado, Economic Growth, p. 182; Veiga Filho, Relatório, p. 64. 34. Manoel Ferraz de Campos Sales, Da propaganda à presidência (São Paulo: Typ. "A Editora," 1908), pp. 186, 197. 35. Villela and Suzigan, Política do governo, pp. 414, 424, 439. 36. Viana, Banco do Brasil, p. 671; Freire, Banco do Brasil, p. 199. 37. Quoted in Pan American Union, Bulletin (December 1898), p. 990. 38. Guanabara, Campos Sales, pp. 311-325; Rothschild to J. C. Rodrigues, London, 1898, J. C. Rodrigues Archive, IHGB, Rio de Janeiro (hereafter JRIHGB), Lata 584, Pasta 37; Jornal do Commércio (2 March 1899), p. 1. 39. Guanabara, Campos Sales, pp. 334-339. 40. Calculated from DGE, Anuário estatístico, 1939-1940, pp. 1353, 1354, 1359, 1375, 1410; Villela and Suzigan, Política do governo, p. 48. 41. Jornal do Povo (6 July 1901). 42. Campos Sales to J. C. Rodrigues, Rio, 23 May 1899, JRIHGB, 1-3, 4.85; J. C. Rodrigues to Campos Sales, Rio, June 1899, JRIHGB, 1-3, 4.86; Célio Debes, Campos Sales:perfil de um estadista (Rio de Janeiro: Livraria Francisco Alves and MEC, 1978), v. 2, pp. 495, 501-505, 521, 557. 43. Debes, Campos Sales, v. 2, pp. 507, 508, 553; Virgílio Correa Filho, Joaquim Murtinho (Rio de Janeiro: Imp. Nacional, 1951), pp. 50-52. For Murtinho's thoughts, see Murtinho, Idéiaseconômicasde Joaquim Murtinho (Rio de Janeiro: Fundação Casa Rui Barbosa, 1980). For a scathing attack on Murtinho's policy written by an industrialist and defender of commerce, see Luís Vieira Souto, O último relatório da fazenda (Rio de Janeiro: L. Malafaia Júnior, 1902). Campos Sales, Da propaganda à presidência, p. 197; Almanak Laemmert, 1900, pp. 681, 765. 44. Guanabara, Campos Sales, pp. 347-358; Leopold Bulhões, Os financistas do Brasil (Rio de Janeiro: Typ. Jornal do Comércio, 1914), p. 37. 45. Ministério de Fazenda, Relatório, 1905, pp. 74-75. 46. Ibid., pp. 74-75, 77-79, 95; Jornal do Commércio, Retrospeto commercial,

180

Notes to pages 39-42

1905, pp. 78, 81, 82. Quote on "needs of commerce and industry" from L. Bulhões to A. Pena, Rio, 26 November 1906, AP 6-1.2.551. 47. L. Bulhões to A. Pena, Rio, 26 November 1906, AP 6-1.2.551; 6 March 1905, AP 6-1.2.544. 48. L. Bulhões to A. Pena, Rio, 7 December 1905, AP 6-1.2.549; Rio, 2 March 1905, AP 6-1.2.543. 49. Jornal do Commércio, Retrospeto commercial 1905, pp. 78, 79. 50. William H. Lough, Banking Opportunities in South America (Washington, D. C: GPO, 1915), p. 101. 51. João Ribeiro to A. Pena, Juiz da Fora, 18 October 1899, AP 1-2.1.220. For more on the Jardim de Infancia, see Afonso Arinos de Melo Franco, Um estadista da República (Rio de Janeiro: Livraria José Olympio, 1955), v. 2, pp. 470, 483. 52. Brazilian Business (February 1922), p. 11; Edward N. Hurley, Banking and Credit in Argentina, Brazil Chile and Peru (Washington, D.C.: 1914), p. 15; Jornal do Commércio, Retrospeto commercial, 1914, p. 50; Pan American Union, Bulletin (April 1910), p. 690; Rippy, British Investment, pp. 150, 151; M. Eddy Stols, "Les investissements Beiges au Brésil, 1830-1914," in Colloques Internationaux, Centre National de la Recherche Scientifique, L 'histoire quantitative du Brésil de 1800 a 1930, p. 264 (Paris: Editions du CNRS, 1973); Irving Stone, "British Direct and Portfolio Investment in Latin America before 1914," Journal of Economic History 37, no. 3 (September 1977): 706. 53. Villela and Suzigan, Política do governo, pp. 56, 424, 439; Contador and Haddad, "Produção real," pp. 432-436. 54. Ministério da Fazenda, Relatório, 1906, p. xiii. For the debate on the Caixa, see Congresso, Documentos Parlamentares, Caixa de Conversão, 2 vols. (Paris: Typ. Alliand, Alves & Cia., 1914). 55. Augusto Bulhões, Leopoldo de Bulhões: umfinancistade princípios, 18561928 (Rio de Janeiro: Ed. Financeiros, São Paulo, n.d.), pp. 11-13. The Rothschilds were also concerned: see Francisco Regis de Oliveira to A. Pena, London, 10 November 1906, AP 7-1.1.738; Congresso, Documentos Parlamentares, Caixa de Conversão, v. 2, pp. 31, 32. Bulhões, Rodrigues Alves's minister offinance,may have had divided personal loyalties because, although his family was exporters, he served on the board of foreign companies and was for a short time president of the Commercial Association of Rio de Janeiro: Eudes Barros, A Associação Comercial no Império e na República (Rio de Janeiro: Gráfica Olímpica, 1975), p. 177; Diário Oficial (11 March 1926), p. 5657. 56. Jornal do Commércio Retrospeto commercial, 1910, pp. 23-28, 33. 57. Neuhaus, História monetária, p. 165. 58. Jornal do Commércio, Retrospeto commercial, 1905, p. 89. 59. Ministério da Fazenda, Relatório, 1905, p. 41. 60. João Ribeiro de Oliveira e Souza to A. Pena, Rio, 28 November 1907, AP 111.2.1237; 11-1.2.1269; Rio, 17 April 1909, AP 11-1.2.1268; Rio, 30 April 1908, AP 12-1.2.1251; 5 February 1909, AP 11-1.2.1264; João Ribeiro to Ouro Preto, Rio, 31 December 1907, Visconde de Ouro Preto Archive, IHGB, Rio (hereafter OP), Lata 427, Doc. 31; Campos Sales to J. C. Rodrigues, São Paulo, 2 February 1904, JRIHGB, Lata 584, Pasta 61; DGE, Anuário estatístico, 1908-1912, v. 2, p. 48; Wirth, Minas Gerais, p. 56. The federal mortgage bank wasfloatedon the Rio

Notes to pages 43-47

181

stock market in 1909, but according to the Jornal do Commércio, Retrospeto commercial, 1909, p. 23, there were almost no interested investors. The bank folded and its headquarters was sold to French investors, who used it for the Credit Foncier du Brésil. 61. Villela and Suzigan, Política do governo, pp. 393, 414; Neuhaus, História monetária,p.157;DGE,Anuário estatístico, 1939-1940, p. 1410; Celso Peçanha, Nilo Peçanha e a revolução brasileira (Rio de Janeiro: Civilização Brasileira, 1969), pp. 9, 10, 46. 62. Leis do Brasil, Decreto 2.357 of 31 December 1910; Ministério da Fazenda, Relatório, 1912, p. 76; Neuhaus, História monetária, pp. 157, 165. 63. Villela and Suzigan, Política do governo, p. 441; Ministério da Fazenda, Contos do exercíciofinanceirode 1925 e relatório da Contadoria da República (Rio de Janeiro: Imp. Nacional, 1926), p. 245; idem, Relatório, 1905, p. 89; Indústria e Comércio, Rio, 31 March 1920; Congresso, Documentos Parlamentares, Mensagens presidenciais, 1915-1918 (Rio de Janeiro: Jornal do Commércio, 1921), p. 65. 64. Ministério da Fazenda, Contos do exercíciofinanceiro,p. 246. Spending calculated from DGE, Anuário estatístico, 1939-1940, p. 1410; Contador and Haddad, "Produção real," pp. 451, 452. 65. Neuhaus, História monetária, p. 165; Bulhões, Financistas, p. 43; Ministério da Fazenda, Contos do exercíciofinanceiro,p. 247. For the debate, see Congresso, Documentos Parlamentares, Meio circulante 1914 (Rio de Janeiro: Imp. Nacional, 1917), passim. 66. Presidente, Mensagem, 1915, p. 70: Ministério da Fazenda, Relatório, 1915, p. 53; Leis do Brasil, Lei 2,863, 24 August 1914, article 7; Lough, Banking Opportunities, p. 24. 67. Presidente, Mensagem, 1918, p. 547. 68. Jornal do Commércio, Retrospeto commercial, 1918, p. 93. 69. Congress also rescinded authorization for German banks and insurance companies to operate in Brazil, but the war ended before the measure could be carried out: Presidente, Mensagem, 1919, p. 8. 70. Ministério da Fazenda, Relatório, 1920, ρ. 104; Neuhaus, História monetária, pp. 157, 158, 169, 180. 71. Washington Luís to E. Pessoa, Rio, 28 October 1920, Epitácio Pessoa Archive, IHGB, Rio (hereafter EP), Pasta 43. 72. Banco do Brasil, Relatório, 1921, p. 9: 1922, p. 11. Octávio Tavares, President, Câmara Deputados Pernambuco, to E. Pessoa, 8 April 1921, EP, Pasta 43; Commissão Comércio Pernambuco to E. Pessoa, Recife, 5 April 1921, EP, Pasta 43; Neuhaus, História monetária, p. 166. 73. Wileman's Brazilian Review (10 April 1930), pp. 478,480; Viana,Bancodo Brasil, p. 825. 74. Leis do Brasil, Lei 14,728, 2 April 1921; Viana, Banco do Brasil, p. 822; Jornal do Commércio (2 March 1921), p. 2; Gil Blas (6 January 1922). 75. Washington Luís to E. Pessoa, Rio, 28 October 1920, EP, Pasta 43; J. Whitaker to H. Baptista, Rio, 13 December 1924, EP, Pasta 43; Jornal do Commércio, Retrospeto commercial, 1918, pp. 99-108; Sertório de Castro to Raul Soares, São Paulo, 10 September 1921, RS 21-10-09/2.

182

Notes to pages 47-51

76. Sertório de Castro to Raul Soares, São Paulo, 10 September 1921, RS 21-1009/2; Alberto Faria to R. Soares, Rio, 23 July 1923, RS 23-07-23/2; Banco do Brasil, Relatório, 1918, pp. 20, 21; 1924, pp. 142-148. 77. Banco do Brasil, Relatório, 1924, pp. 136-140. 78. A. Bernardes to R. Soares, Rio, 22 November 1923, RS 22-11-23/3. 79. Banco do Brasil, Relatório, 1924, p. 5; Jornal do Commércio, Retrospeto commercial, 1924, p. 28; 1925, pp. 24, 118; Winston Fritsch "1924," Pesquisa e Planejamento Económico 10, no. 3 (1980). 80. Ministério da Fazenda, Relatório, 1926, p. xvii; "Principais etapas de estabilização," in Oswaldo Aranha Archive, CPDOC, FGV, Rio de Janeiro, Bancos, Pasta 1 (hereafter OA). 81. Banco do Brasil, Relatório, 1924, p. 29. 82. Cincinato Braga, Brasil novo (Rio de Janeiro: Imprensa Nacional, 1931), v. 2, p. 26; Neuhaus, História monetária, p. 165. 83. Wileman's Brazilian Review (24 March 1927), p. 361; Jornal do Commércio, Retrospeto commercial, 1925, p. 22; Neuhaus, História monetária, pp. 184,192,194; Custódio Coelho interviewed in Correio da Manhã (3 December 1926), and O Jornal (16 August 1925). 84. Departamento Nacional de Estatística, Movimento bancário, 1927-1928 (Rio de Janeiro: Depto. Nacional de Estatística, 1930), ρ. 40; Neuhaus, História monetária, pp. 165,194; Jornal do Commércio, Retrospeto commercial, 1929, p. 9; Washington Luís to Brandão Neto, São Paulo, 8 November 1954, Washington Luís Pereira de Sousa Papers, Arquivo Nacional, Rio (hereafter WL), Caixa 15; A Noite, Rio de Janeiro (22 January 1931); Great Britain, Department of Overseas Trade, Stanley G. Irving, Report, p. 16; idem, Ernst Hambloch, Report on the Economic and Financial Conditions in Brazil (London: HMSO, 1923), pp. 9, 10. 85. João Neves to G. Vargas, Rio de Janeiro, 23 May 1929, Getúlio Vargas Archive, CPDOC, Fundação Getúlio Vargas, Rio de Janeiro (hereafter GV), GV 1929.05.23; President, Mensagem, 1929, in Departamento Nacional de Café, Defesa do café no Brasil (Rio de Janeiro: Depto. Nacional do Café, 1935), v. 1, pp. 96, 98; São Paulo, Presidente, Mensagem, 14 July 1930, p. 11; Jornal do Commércio, Retrospeto commercial, 1929, p. 48; Affonso de Escragnolle Taunay, História do café no Brasil (Rio de Janeiro: Depto. Nacional do Café, 1942), v. 13, p. 360. 86. Ministério da Fazenda, Contas do exercíciofinanceiro,p. 245; Villela and Suzigan, Política do governo, p. 333; DGE, Anuário estatístico, 1939-1940, p. 1422. 87. Ministério da Fazenda, Contas do exercício financeiro, p. 246; DGE, Anuário estatístico, 1939-1940, p. 1424; Ministério da Fazenda, Relatório, 1926, pp. 79-85. 88. Calculated from Contador and Haddad, "Produção real," p. 432-435; Villela and Suzigan, Política do governo, p. 335, 451. 89. Braga, Brasil novo, v. 2, p. 83. 90. Calculated from DGE, Anuário estatístico, 1939-1940, pp. 1350, 1351, 1355; and Contador and Haddad, "Produção real," p. 432-436. 91. Calculated from Wileman's Brazilian Review (10 April 1930), pp. 479, 480; Departamento Nacional de Estatística, Movimento bancário, 1929-1930, p.

Notes to pages 52-61

183

27; British Chamber of Commerce for São Paulo and Southern Brazil, Yearbook 1930 (São Paulo, 1931), p. 65. 92. Villela and Suzigan, Política do governo, p. 412. 93. Rondo Cameron, Banking in the Early States of Industrialization (New York: Oxford University Press, 1967), pp. 20-24; Contador and Haddad, "Produção real," p. 432; DGE, Anuário estatístico, 1908-1912, v. 1, p.lvi; idem, Anuário estatístico, 1939-1940, pp. 1295,1296,1356;Wirth,Minas Gerais, p. 56. 94. DGE, Anuário estatístico, 1939-1940, p. 1356. Per capita wealth data from Die Wirtschaften Kraften der Welt, cited in Jornal do Commércio, Retrospeto commercial, 1930, p. 32; Department of Commerce, Historical Statistics of the United States, 1789-1945 (Washington, D.C.:GPO, 1949), pp. 7,10,11,26,640. U.S. per capita wealth in 1928 was six times greater than the Brazilian; U.S. per capita savings were almost twelve times greater. 95. DGE, Anuário estatístico, 1939-1940, pp. 1351, 1356; C. I. Souza, "A situação do Banco do Brasil e a sua próxima reforma," 1928, OA 28.12.00. 96. Jornal do Commércio, Retrospeto commercial, 1930, p. 217; Banco da la Nación, Memoria y balance general do ejercicio 1925 (Buenos Aires: Talleres Gráficos de la Compañía General de Fósforos, 1925), p. 9. 97. "Irregularidades, 1930/32," OA, Banco do Brasil, pasta 1. 98. DGE, Anuário estatístico, 1939-1940, pp. 1355, 1356; Departamento Nacional de Estatística, Movimento bancário, 1930-1931, p. 40; Banco do Brasil, Relatório, 1931, anexo; Banco do Estado de São Paulo, Relatório, 1936 (São Paulo: Typ. J. Pallottini, 1937); Minas Gerais, Secretaria de Agricultura, Anuário estatístico, 1922-1925 (Belo Horizonte: Imp. Oficial, 1929), pp. 936-967. 99. Ministério da Fazenda, Relatório, 1926, p. 70-74. 100. Banco do Brasil, Relatório, 1924, p. 27; 1925, p. 22; 1926, p. 20; 1931, pp. 39; and anexo. 3. The Defense of Coffee 1. J. W. F. Rowe, Studies in the Artificial Control ofRaw Material Supplies: Brazilian Coffee (London: London & Cambridge Economic Service, 1932), p. 5. 2. There are no global statistics for landholding in the nineteenth century; however, during the height of coffee production, eighty fazendeiros controlled the most productive part of Vassouras, one of the richest coffee counties (Stein, Vassouras). Data for 1927 point up the tendency toward concentration of land; in that year, the top 5 percent of Paulista plantations, in terms of size, planted over half of all trees (Rowe, Studies, p. 89). 3. Banco do Brasil, Relatório, 1889, pp. 20,21; Câmara dos Deputados, Anais, 1892, ν. 3, p. 17l;Levi, A família Prado, pp. 160,161; Ribeiro,Bancos,pp. 48-57; Sweigart, "Financing and Marketing," p. 147. 4. R. Barbosa to P. de Morais, Rio, 9 August 1890, Prudente de Morais Archive, IHGB, Rio (hereafter PM). 5. Memorandum, Banco Hypotecário do Brasil to F. Peixoto, Rio, 18 October 1893, FP, Caixa 8L, Pacote 5; Freire, Banco do Brasil, table 1. 6. Congresso, Documentos Parlamentares, Meio circulante, 1893, 1894, pp. 84-98; Freire, Banco do Brasil, pp. 185, 197; Ministério da Fazenda, Relatório, 1898, pp. 61, 72.

184 Notes to pages 61-65 7. Ribeiro, Bancos, ρ. 66; Veiga Filho, Estudo econômico, pp. 23, 25; idem, Relatório, p. 90. 8. Douglas H. Graham, "Migração estrangeira e a questão de oferta de mão de obra no crescimento econômico brasileiro, 1880-1930," Estudos Económicos 3 (1973): 35 . 9. Brazilian Review (10 July 1901), p. 548, (4 August 1903), p. 380; William Gay McCreery, The Coffee Industry in Brazil (Washington, D.C.: GPO, 1930), p. 45; Ukers, Coffee Merchandising (New York: The Tea and Coffee Trade Journal, 1924), pp. 138, 139, 223, 224. For examples of attacks on foreign exporters, see Câmara dos Deputados, Anais, 1899, v. 6, p. 516; 1901, v. 6, p. 213; 1904, v. 4, pp. 133,134; Franklin Hermogenes Dutra, A baixa do café (Rio de Janeiro, 1908), pp. 11-14; Gazeta de Notícias (16 March 1906), p. 1; Jornal do Commércio, A baixa do café (Rio de Janeiro: Jornal do Commércio, 1898), pp. 16, 45; Joaquim Franco de Lacerda, Memorandum sobre a situação estatística do café no mundo; o cámbio no Brasil; a situação económica efinanceirado estado de São Paulo (Rio de Janeiro: Imp. Nacional, 1898), p. 32. 10. Ministério da Fazenda, Relatório, 1898, p. 9; 1899, pp. iii, iv, xvi, xxiv, xxxiv; Presidente, Mensagem (3 May 1896), p. 29; Sociedade Nacional de Agricultura, O café (Rio de Janeiro: 1900). The foremost Brazilian exporter, Antônio Prado, shared this view in the Estado de São Paulo (24 September 1905), p. 5. 11. M. E. Goetzinger, The History of the Firm of Arbuckle Brothers (The Percolator, 1921), p. 2; Congress, Industrial Commission Reports, v. 1: Trusts: Preliminary Report, 56th Cong., 1st sess., 1899-1900, H. Docs. 93, no. 476, pp. 61, 62. 12. Wickizer, Coffee, Tea and Cocoa, pp. 29, 36-39, 463. 13. Holloway, "Migration and Mobility," pp. 88-98. 14. Câmara dos Deputados, Anais, 1901, v. 6, p. 377; 1905, v. 7, pp. 245, 246. 15. Ibid., 1905, v. 7, pp. 34, 35; Padua Rezende, Defesa do café: a exposição de 1922 e frigoríficos (Rio de Janeiro: Imp. Nacional, 1927), pp. 31, 32. 16. Mayrink, Questãofinanceira,pp. 49, 50; Câmara dos Deputados, Anais, 1897, ν. 7, pp. 655-656; Ministério da Fazenda, Relatório, 1898, pp. 5, 556. 17. J. Ribeiro to Visconde de Ouro Preto, Rio, 31 December 1907, OP, Lata 427, Doc. 31. 18. Centro do Comércio do Rio de Janeiro to A. Pena, Rio, 18 April 1907, AP; Ribeiro, Bancos, pp. 64-71. João Pandiá Calógeras estimates, in A política monetária do Brasil (São Paulo: Editora Nacional, 1960), p. 285, that São Paulo's mortgage debt in 1896 was four hundred thousand contos. By 1906 it was presumably higher. 19. M. F. Campos Sales to J. Carlos Rodrigues, São Paulo, 2 February 1904, JRIHGB, Lata 584, Pasta 61; Ribeiro, Bancos, pp. 79, 83, 84. 20. Cámara dos Deputados, Anais, 1901, ν. 6, p. 217; 1904, v. 4, pp. 133,134; Minas Gerais, Minas Gerais e o bicentenário do cafeeiro no Brasil, 1727-1927 (Belo Horizonte: Secretaria de Agricultura, 1929), pp. 70-72. 21. Holloway, "Migration and Mobility," pp. 69, 276, 278. 22. Santos and Mendoça, "Intervenção estatal"; Q. Bocayuva toEricoCoelho, 6 August 1901, QB 01.02.05 cp.

Notes to pages 65-71

185

23. Tea and Coffee Trade Journal (December 1925), pp. 915-918; F. Ferreira Ramos, The Valorization of Coffee in Brazil (Antwerp: J. E. Buschmann, 1907), p. 13; Wirth, Minas Gerais, pp. 39. 24. Leis do Brasil, Decreto 2.221, 30 December 1909; Rezende, Defesa do Café, pp. 24, 27. 25. Minas Gerais, Minas Gerais, pp. 215, 216. 26. Holloway, "Migration and Mobility," pp. 176, 365; Love, São Paulo, p. 18. 27. Câmara dos Deputados, Anais, 1905, v. 7, p. 28. 28. Ibid., 1901, v. 11, p. 60. 29. Ibid; 1904, v. 4, pp. 101-104; DGE, Anúario estatístico, 1939-1940, pp. 1358, 1375, 1378, 1379, 1423; Ministério da Fazenda, Relatório, 1898, pp. 529, 530; Ministério de Viação e Obras Públicas, Relatório, 1897, pp. xv, xxiii-xxiv; Eugênio Egas, Galeria dos presidentes de São Paulo, período republicano, 18891920 (São Paulo: Estado de São Paulo, 1927), passim; Jornal do Commércio, Retrospeto commercial, 1906, p. 22; Villela and Suzigan, Política do governo, p. 414. 30. DGE, Anúario estatístico, 1939-1940,p.31S; Pierre Denis, Le Brésil au xx siècle (Paris: A. Colin, 1909), p. 84; D. Graham, "Migração estrangeira," pp. 33, 35. 31. Holloway, Vida e morte, p. 61. 32. Presidente, Mensagem, 1906, in Departamento Nacional de Café, Defesa do café, v. 1, pp. 18-19; A. Pena to Jorge Tibiriça, Rio, 19 January 1907, AP 111.2.1289 A. 33. Leopoldo Bulhões to A. Pena, Petrópolis, 1 March 1906, AP 1.2.555; Jornal do Commércio, Retrospeto commercial, 1905, p. 88. 34. J. J. Revy to A. Pena, Rio, 27 May 1907, AP 10-1.2.1047A; Feliciano Pena to A. Pena, 15 April 1906, AP 9-1.2.880. 35. A. Pena to J. Tibiriça, Rio, 4 March 1907, AP 9-1.1.301; Feliciano Pena to A. Pena, no date, AP 9-2.883; L. Bulhões to A. Pena, Petrópolis, 1 March 1906, AP 9-1.2.555; Associação de Comércio da Bahia, Representação dirigida ao congresso federal contra o convénio de Taubaté (Bahia, 1906), pp. 6, 8. 36. Almanak Laemmert, 1889, pp. 1356-1359; Manuel Diegues Júnior, População e açúcar no Nordeste do Brasil (Rio de Janeiro: Comissão Nacional de Alimentação, 1954), pp. 157-192; Peter Eisenberg, Modernização sem mudança (São Paulo: UNICAMP, Paz e Terra, 1977), pp. 102-104, 111-133; Gnaccarini, "A economica do açúcar," HGCB, v. 8, pp. 326-327. 37. Examples of concern over rubber's situation include Congresso, Documentos Parlamentares, A defesa da borracha 1906-1914 (Rio de Janeiro: Jornal do Commércio, 1915), passim; Correio do Norte (31 May 1910), p. 1; Miguel Calmon, Produção e comércio da borracha (Rio de Janeiro: Jornal do Commércio, 1906), passim; Ludwig Sachwenhagen, Meios do melhorar a situação económica e moral da população do interior do Amazonas (Manaus: 1910); and Lauro Sodré, Indústrias extractivas (Rio de Janeiro: Imp. Nacional, 1901), pp. 85, 86. 38. A Pena to J. Tibiriça, Rio, 4 March 1907, AP 1.1.30; 8 March 1907, AP 1.1.302; 17 August 1907, AP 1.1.343; Holloway, Vida e morte, p. 70. 39. William Η. Ukers, All About Coffee (New York: Tea and Coffee Trade Journal, 1935), pp. 447, 448.

186 Notes to pages 71-74 40. São Paulo, Presidente, Mensagens apresentadas ao congresso legislativo de São Paulo pelos presidentes do estado e vice-presidentes em exercício desde a proclamação da República até o ano de 1916 (São Paulo: Typ. Diário Oficial, 1916), p. 397; William Τ. Chantland, "Valorization of Coffee," 63d Cong., 1st sess., Senate Documents 6535, doc. 36 (Washington, D.C.: GPO, 1913), p. 10. 41. Percival Farquhar, Memorandum, Percival Farquhar Archive, Arquivo Nacional, Rio (hereafter PFAN), Caixa 41; J. Tibiriça to A. Pena, São Paulo, 25 March 1907, AP. 42. São Paulo, Presidente, Mensagens, p. 511; also see the 1908 agreement in EP, Pasta 49. 43. Congressional Record, 66th Cong., 25 April 1911, pp. 635,638; Chantland, "Valorization," pp. 11-13; Ukers, All about Coffee, p. 460. 44. São Paulo, Presidente, Mensagens, pp. 597, 644; also see Richard Lowitt, George W. Norris, the Making of a Progressive, 1861-1912 (Syracuse, N.Y.: Syracuse University Press, 1963), pp. 212-215, 223; and Leon F. Sensabaugh, "The Coffee Trust Question in United States-Brazilian Relations, 1912-1913," HAHR 26, no. 4 (November 1946): 480-496. 45. A Pena to Rodrigues Alves, Rio, 23 July 1907, AP 1.1.339; A. Pena to Custodio Coelho, Rio, 4 September 1908, AP 1.1.425. 46. São Paulo, Presidente, Mensagem, 1917, in Departamento Nacional de Café, Defesa do café, v. 2, p. 87; Minas Gerais, Minas Gerais, pp. 71,72, 367; São Paulo, Presidente, Mensagens, pp. 444,696; Ε. Johnston & Co., Um século de café (1842-1942) (London: Johnston & Co., 1942), p. 13, 26, 29, 33; Rezende, Defesa do café, p. 37. 47. São Paulo, Presidente, Mensagem, 1918, p. 96; Wileman's Brazilian Review (25 August 1920), pp. 1227-1230; (13 April 1921), pp. 582-584; (21 November 1923), pp. 1547-1549; (22 October 1924), pp. 1416-1419, V. D. Wickizer, The World Coffee Economy with Special Reference to Control Schemes (Stanford, Cal.: Food Research Center, 1943), p. 138. 48. Michael Monteón, Chile in the Nitrate Era: The Evolution of Economic Dependence (Madison: University of Wisconsin Press, 1982), p. 64, 122, 123. Robert Greenhill points out that the British also dominated Chile's iodine trade ("The Nitrate and Iodine Trades, 1880-1914," in Business Imperialism 18401930: An Inquiry Based on British Experience in Latin America, ed. D. C. M. Platt, pp. 264, 265, 282 [Oxford: Oxford University Press, 1977]). Brazil's control of sales contrasts sharply with Chile's World War I experience with nitrates. Chile also held a virtual world monopoly in its principal export. However, nitrates were primarily foreign owned andfinanced.Consequently, the importing countries formed a cartel that established nitrate export and price levels, limiting the Chilean state's influence in the scheme. 49. Epitácio Pessoa to the delegation of the Congresso dos Lavradores, São Paulo, 17 March 1921, EP, Pasta 49; Sociedade Paulista de Agricultura to E. Pessoa, São Paulo, 17 March 1921, EP, Pasta 49; Sociedade Rural Brasileira to E. Pessoa, São Paulo, 8 May 1921, EP, Pasta 49. São Paulo's control of Epitácio was evidenced not only by his submission to the coffee defense plan but by his refusal to aid the North at exactly the same time. Whie his administration was aiding coffee in the South and planning drought relief for the Northeast, he turned a deaf ear to the

Notes to pages 75-79

187

pleas of Amazonas's governor that "the trees are abandoned... commerce is ruined... the state's income is almost completely exhausted... rubber gatherers have become gunmen sacking towns and threatening cities... while the best elements abandon the state . . . so that the total ruin of the immense Amazon appears inevitable" (Rego Monteiro to Ε. Pessoa, Manaus, 10 March 1921, EP, Pasta 43). Because of a shortage of funds, Epitácio argued that all his government could do was to have a few federal experimental farms plant cotton and cereals, employ some people in the colonization program, and provide free transportation for those who wished to flee the North (E. Pessoa to R. Monteiro, Petrópolis, 31 March 1921, EP, Pasta 43). 50. Leis do Brasil, Lei 4,315, 28 August 1921; Custódio Coelho, Memorandum, 8 November 1920, EP, Pasta 43; J. Whitaker to E. Pessoa, 9 March 1922, EP, Pasta 43. 51. Because the issue was subscribed several times over within three hours after it was offered to the London public, it would seem that the Brazilians could have received better terms (Rothschilds to H. Baptista, London, 2 and 4 May 1922, EP, Pasta 49). 52. A. Bernardes to R. Soares, Rio, 23 November 1922, RS 22-11-23/3; J. Whitaker to H. Baptista, Rio, 29 July 1921, EP, Pasta 49; J. Schroeder to E. Pessoa, Rio, 16 March 1922, EP, Pasta 49. 53. Wileman 's Brazilian Review (27 February 1917), p. 161;(llJune 1918), p. 550; (13 August 1918), p. 627; (9 June 1920), p. 789; (11 June 1918), p. 550; (19 November 1924), p. 1180; Johnston, Um século, pp. 13, 26, 29, 33. 54. A. Bernardes to A. de Melo Franco, Belo Horizonte, 16 September 1920, EP, Pasta 43; Sertório de Castro to R. Soares, 9 November 1921, RS 21-10-09/2; A. Bernardes to E. Pessoa, Belo Horizonte, 20 March 1921, EP, Pasta 49; Presidente de Minas Gerais, Mensagem, 1921, in Departamento Nacional de Café, Defesa do café, v. 2, p. 210. 55. A. Bernardes to R. Soares, Rio, July 1927, RS 23-07-00. 56. Ibid. 57. Ibid.; A. Faria to R. Soares, Rio, 23 July 1923, RS 23-07-23/2; Presidente de Minas Gerais, Mensagem, 1924, in Departamento Nacional de Café, Defesa do café, v. 2, pp. 79, 80; Manoel Olympio Romeiro, São Paulo e Minas na economia nacional (São Paulo: 1930), pp. 15, 16. 58. Quoted in the Tea and Coffee Trade Journal (July 1925), p. 73; Presidente, Mensagem, 1928, and São Paulo, Presidente, Mensagem, 1922, in Departamento Nacional de Café, Defesa do café, v. 1, p. 85; v. 2, p. 126. 59. Mário Rolim Telles, A defesa do café e a crisedel929 (São Paulo: 1931), pp. 5, 7. 60. Paulo de Moraes Barros, Política do café, ano de 1929 (Rio de Janeiro: Imprensa Nacional, 1929), p. 76; Departamento Nacional de Café, Defesa do café, v. 2, p. 144. 61. Instituto de Café do Estado de São Paulo, Documentos Elucidativos, Inquérito do Instituto de Café do Estado de São Paulo (São Paulo: Empreza Gráfica da "Revista dos Tribunais," 1933), p. 20; São Paulo, Secretaria da Fazenda, Relatório, 1928, pp. 152-155. 62. Rolim Telles, A defesa, pp. 70-72. 63. São Paulo, Presidente, Mensagem, 1928, in Departamento Nacional de

188

Notes to pages 79-85

Café, Defesa do café, v. 2, p. 146. 64. Minas Gerais, Presidente, Mensagem, 1929, in Departamento Nacional de Café, Defesa do café, v. 2, pp. 229, 232; São Paulo, Secretaria da Fazenda, Relatório, 1928, p. 23; São Paulo, Presidente, Mensagem, 1930. 65. Presidente do Estado do Rio de Janeiro, Mensagem, 1928, in Departamento Nacional de Café, Defesa do café, v. 2, pp. 322, 324; Taunay, História do café, v. 13, p. 238. 66. Presidente, Mensagem, 1929; Departamento Nacional de Café, Defesa do café, v. 1, pp. 92, 93; ν. 2, p. 141. 67. São Paulo, Presidente, Mensagem, 1927, in Departamento Nacional de Café, Defesa do café, v. 2, p. 87. 68. Presidente, Mensagem, 1928, 1929, in Departamento Nacional de Café, Defesa do café, v. 1, pp. 85, 92, 93; José Carlos de Macedo Soares, A política financeira do Presidente WashingtonLuís(São Paulo: Saraiva & Cia., 1927), pp. 28-34. 69. Rohm Telles, A defesa, pp. 24, 25, 43. 70. Jornal do Commércio, Retrospeto commercial, 1929, ρ. 41; Secretaria da Fazenda de São Paulo, Relatório, 1929, in Departamento Nacional de Café, Defesa do café, v. 1, p. 212; Rowe, Studies, pp. 43, 44. 71. Ministério da Fazenda, Relatório, 1925, in Departamento Nacional de Café, Defesa do café, v. 1, p. 155. 72. Presidente, Mensagem, 1929, in Departamento Nacional de Café, Defesa do café, v. 1, p. 96; Jornal do Commércio, Retrospeto commercial, 1929, pp. 20, 48; Rolim Telles, A defesa, p. 22, 31. 73. Moraes Barros, Política do café. pp. 6,10,11,26,30,33,89. Rowe, Studies, agreed with Moraes Barros, maintaining that "the government of the state of São Paulo deliberately used the defense scheme for political purposes" (p. 17). 74. Jornal do Commércio, Retrospeto commercial, 1929, pp. 5, 6. 23. For the planters' plan, see Augusto Ramos, A crise do café: parecer apresentado à Sociedade Rural Brasileira (São Paulo: Revista dos Tribunais, 1930), pp. 46-64. 75. Arthur Caetano reported to Getúlio Vargas, São Paulo, 7 December 1929, OA 29-12-07/1, that there was much opposition to Júlio Prestes from people not affiliated with the dissident Partido Democrático; rather, they were "dissident elements revolted with the disaster that is the Coffee Institute and the state bank." See also João Neves to Getúlio Vargas, Rio, 28 October 1929, GV 29.10.28/2, and Jordan M. Young, The Brazilian Revolution of 1930 and the Aftermath (New Brunswick, N.J.: Rutgers University Press, 1967), pp. 70-80. 76. Wickizer, The World Coffee Economy, p. 249; Rowe, Studies, pp. 57-60. 77. DGE, Anuário estatístico, 1939-1940, p. 1307; Presidente, Mensagem, 1929, in Departamento Nacional de Café, Defesa do café, v. 1, p. 98. 78. Departamento Nacional de Estatística, Movimento bancário, 1930-1931, p. 40; Jornal do Commércio, Retrospeto commercial, 1929, pp. 217-222. 79. Rowe, Studies, pp. 88, 89. 80. Minas Gerais, Minas Gerais, pp. 400, 433; Ukers, Coffee Merchandising, pp. 138,139, 223, 224; McCreery, The Coffee Industry in Brazil, p. 45; Jornal do Commércio, Retrospeto commercial, 1929, p. 40. 81. Rowe, Studies, p. 24.

Notes to pages 85-89

189

82. Calculated from J. P. Wileman, ed., The Brazilian Yearbook, 1908-1909 (New York: G. Fairbanks, 1909), p. 632; Jornal do Commércio, Retrospeto commercial, 1929, pp. 647, 663-665. 83. Calculated from The Brazilian Review (30 July 1901), p. 548; (4 August 1903), p. 380; Wileman's Brazilian Review (25 August 1920), pp. 1227-1230; (13 April 1921), pp. 582-584; (21 November 1923), pp. 1547-1549; (22 October 1924), pp. 1416-1419; São Paulo, Secretaria da Fazenda, Relatório, 1926, pp. 419-425, 1927, pp. 419-421; Love, São Paulo, p. 43. 84. Sílvio Alvares Penteado, Sistema de defesa permanente do café: estudos de política económica nacionalista (São Paulo: O Livro, 1921), p. 83; Epitácio Pessoa, Pela verdade (Rio de Janeiro: Livraria Francisco Alves, 1925), pp 181— 183; Correio da Manhã (8 May 1924), p. 2. 85. Wickizer, The World Coffee Economy, pp. 248-249; Rowe, Studies, p. 43; Great Britain, Department of Overseas Trade, Stanley G. Irving, Report, pp. 21,22. 86. Jorge Dumont Villares, O café e sua produção e exportação (São Paulo: Instituto do Café do Estado de São Paulo, 1927), pp. ii, iii. 87. Rowe, Studies, p. 45; São Paulo, Secretaria da Agricultura, Indústria e Comércio, O café; estatística de produção e comércio 1930-1931 (São Paulo: Typ. Garraux, 1933), p. 7; Wickizer, Coffee, Tea and Cocoa, p. 27; Departamento Nacional de Café, O café no segundo centenário da sua introdução no Brasil (Rio de Janeiro, 1934), p. 177; Jornal do Commércio, Retrospeto commercial, 1929, p. 23. 88. Comissão de Estudos Econômicos e Financeiros, A defesa do café (Rio de Janeiro: Typ. Jornal do Commércio, 1935), p. 15; Presidente, Mensagem, 1914, in Departamento Nacional de Café, Defesa do café, v. 1, p. 80; São Paulo, Secretaria da Fazenda, Relatório, 1920, p. iv; Ministério da Fazenda, Relatório, 1926, p. 69; Presidente de São Paulo, Mensagem, 1917, in Departamento Nacional de Café, Defesa do café, v. 2, p. 85. 89. Presidente de São Paulo, Mensagem, 1917, in Departamento Nacional de Café, Defesa do café, v. 2, p. 85; Pessoa, Pela verdade, pp. 10-14; R. L. Bidwell, Currency Conversion Tables: A Hundred Years of Change (London: Rex Collings, 1970), pp. 22,23; Rowe, Studies, p. 8; Presidente de São Paulo, Mensagem, 1921, in Departamento Nacional de Café, Defesa do café, v. 2, p. 121. 90. Presidente de São Paulo, Mensagem, 1921, in Departamento Nacional de Café, Defesa do café, v. 2, p. 120. 91. Ministério da Fazenda, Relatório, 1926, p. 69. 92. Rolim Telles, A defesa, p. 36. 93. Rowe, Studies, pp. 43, 44. 94. Calculated from Thomas Holloway, Immigrants on the Land: Coffee and Society in São Paulo, 1886-1934 (Chapel Hill: University of North Carolina Press, 1980), pp. 148, 154, 156, 159, 163; Rowe, Studies, p. 15. 95. Holloway, Immigrants, pp. 81-82; Rowe, Studies, pp. 19, 20. 96. Instituto de Café do Estado de São Paulo, Inquérito, pp. 19, 20. 97. São Paulo, Presidente, Mensagem, July 14,1930, pp. 14,15; Departamento Nacional de Café, Defesa do café, v. 2, p. 155; Great Britain, Department of Overseas Trade, Stanley G. Irving, Report, p. 21-22. 98. Wickizer, The World Coffee Economy, pp. 244, 245; idem, Coffee, Tea and

190 Notes to pages 90-95 Cocoa, p. 27; Rowe, Studies, p. 18; Holloway, Immigrants, p. 178; Alfredo Ellis Júnior,Aevolução da economia paulista e suas causas (São Paulo: Comp. Editora Nacional, 1937), p. 225. 99. Delfim Netto, O problema do café, pp. 241-243; DGE, Anuário estatístico, 1939-1940, pp. 1293, 1278; Contador and Haddad, "Produção real," pp. 434-435. 100. Extrapolated from Commissão de Estudos Econômicos e Financeiros, A defesa do café, p. 15; DGE, Anuário estatístico, 1939-1940, p. 1411. 101. Holloway, Vida e morte, p. 96. 102. São Paulo, Presidente, Mensagem, 1922, in Departamento Nacional de Café, Defesa do café, v. 2, p. 125; idem, Mensagem, 1924, v. 2, p. 138; Minas Gerais, p. 217. 4. The Railway Network 1. F. Ε. Lawley, The Growth ofthe Collective Economy (London: P. S. King & Son, 1938), v. 1, p. 111; Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas do Brasil, Estatística, 1929-1930, pp. 21-40. 2. See, for example, Sérgio Abranches, "Empresa estatal e capitalismo: uma análise comparada," paper delivered at 27th meeting of the Sociedade Brasileira para o Progresso Científico, July 1976; Baer, Kerstenetsky, and Villela, "The Changing Role," p. 24; Suzigan, "As empresas do governo," pp. 81-82. 3. Gerschenkron, Economic Backwardness; Winthrop R. Wright, BritishOwned Railways in Argentina: Their Effect on the Growth of Economic Nationalism, 1854-1948, Latin American Monographs, 34 (Austin: University of Texas Press, 1974), pp. 46, 80, 126, 133-135; Colin Lewis, "British Railway Companies and the Argentine Government," in Business Imperialism, ed. D. C. M. Platt, p. 415 (London: Oxford University Press, 1978); George Wythe, La industria latino-americana (Mexico City: Fondo de Cultura Económica, 1947), pp. 121— 129. 4. Julian Smith Duncan, Public and Private Operation ofRailways in Brazil (New York: Faculty of Political Science, Columbia University, 1932), pp. 39-40; Leis do governo provisional do Brasil (Rio de Janeiro: Imp. Nacional, 1891), v. 4, p. 527. For a discussion of private sector entrepreneurship, see Robert H. Mattoon, Jr., "Railroads, Coffee, and the Growth of Big Business in São Paulo, Brazil," HAHR 57 (1977): 273-295. 5. V. A. de Paula Pessoa, Guia da Estrada de Ferro Central do Brasil (Rio de Janeiro: Imp. Nacional, 1901), pp. 5,116-118,217-230; Almir ChaibanEl-Kareh, Filha branca de mãe preta: a companhia da Estrada de Ferro D. Pedro II, 18551865 (Petrópolis: Editora Vozes, 1980), passim. 6. Estrada de Ferro Central do Brasil, Relatório, 1891, p. 190; Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatística, 1929-1930, p. 21. 7. Duncan, Public and Private Operation, p. 27. 8. The Economist (25 June 1898), p. 936; J. P. Wileman,Brazilian Currency: The Study of an Inconvertible Currency, 1896, reprint (New York: Greenwood Press, 1969), pp. 61,62; Ademar Benévalo, Introdução à história ferroviária do Brasil; estudo social, político, e histórico (Recife: Edições Folha da Manha, 1953) pp. 537, 543.

Notes to pages 95-99

191

9. Duncan, Public and Private Operation, p. 52. 10. Brazilian Review (7 May 1901), p. 320. 11. Great Britain, H. C. Lowther, Diplomatic and Consular Reports, Railway Systems of Brazil, Misc. Series No. 617 (London: HMSO, 1904), p. 25. 12. Presidente, Mensagem, 3 May 1899, in Congresso, Documentos Parlamentares, Mensagens presidenciais, 1891-1910 (Rio de Janeiro: Typ. Progresso, 1912), p. 219. 13. João Pandiá Calógeras, Problemas de governo (São Paulo: Empresa Gráfica Rossetti, 1928), p. 23; Presidente, Mensagem, 3 May 1902, pp. 277-280. 14. Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas do Brasil, Estatística, 1906, p. xv: 1930, p. 13. 15. Wileman's Brazilian Review (15 September 1920), p. 543. 16. Brazil, Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas do Brasil, Estatística, 1907-1930, passim. 17. Presidente, Mensagem, 3 May 1891, p. 25; 3 May 1897, pp. 140,141,162; Fritsch, "1924." 18. Prudente de Morais to Β. de Campos, Rio, 8 March 1898, PM L592 P45; L. Gomes to A. Pena, Petrópolis, 14 December 1906, AP 6-1.2.491; Fritsch, "1924." 19. Jornal do Commercio, Retrospeto commercial, 1891, pp. 4-5; Felisbello Freire, História da revolta de 6 de setembro de 1893 (Rio de Janeiro: Cunha e Irmão, 1896), p. 4. 20. Central do Brasil, Relatório, 1891; 1907, p. xvii; Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas do Brasil, Estatística, 1929-1930, p. 317; Lobo, História do Rio de Janeiro, v. 2, pp. 568, 569. Efforts to lease out federal lines under Prudente failed because of employee opposition: The Economist (16 October 1897), p. 1567. 21. Central do Brasil, Relatório, 1900, pp. 90, 91; 1917, pp. vi, xiv; Leis do Brasil, Decree 4,061,16 January 1920; Diário oficial (8 June 1920), Instruction of 4 June 1920. Some examples of protest of foreign employment practices include Gil Blas (23 March 1920); O Estado de São Paulo (11 December 1912), p. 1; A Pátria (1 July 1909), p. 1; Jornal do Commércio (2 November 1919), p. 2; Brazilian Review (October 1912), p. 1. 22. Pan American Union, Bulletin (1901), p. 179. 23. Calógeras, Problemas de governo, p. 21. 24. J. Pinheiro to A. Pena, Belo Horizonte, 16 September 1907, AP 10-1.2.1176; J. Pinheiro to A. Pena, Belo Horizonte, 8 March 1907, AP 10-1.2.1172; R. Soares to W. Bras, Belo Horizonte, 5 December 1924, RS 1924-04-22; C. F. Van Delden Laerne, Brazil and Java, p. 191. 25. Estrada de Ferro Minas e Rio, Justificação de uma proposta para arrendamento das estradas de ferro Muzambinho e Sapucahy (Cruzério: Typ. da E. F. Minas e Rio, 1907), in AP 13.2.2.14; Romeiro, São Paulo, p. 27. 26. Presidente, Mensagem, 3 May 1908, p. 626; Congresso, Documentos Parlamentares, Elaboração dos orçamentos: viação (Rio de Janeiro: Typ. Jornal do Commércio, 1913), p. 186. 27. Presidente, Mensagem, 3 May 1910, p. 710. 28. Ministério de Viação e Obras Públicas, Inspetoria Federal das Estradas do

192

Notes to pages 100-102

Brasil, Estatística, 1915, p. 4; 1929-1930, p. 21; Central do Brasil, Relatório, 1891, p. 190; Anúario estatístico, 1939-1940, p. 1336. 29. R. Graham, Britain and the Onset of Modernization, pp. 56, 57; Anúario estatístico, 1908-1912 v. 2, p. xxiii. 30. "Expropriação de E.F. São Paulo-Rio Grande do Sul," PFAN, Caixa 41; Empreza de Informações Garantida, Boletim no. 2,500, Brazil Railroad (Rio de Janeiro: Empreza Garantida, 1915), pp. 2, 3. 31. Monitor Mercantil (23 December 1915), p. 297; Empreza de Informações Garantida, Brazil Railroad, pp. 1, 2; Brazilian Review (28 May 1907), p. 608; British Chamber of Commerce for São Paulo and Southern Brazil, Personalidades no Brasil (São Paulo: S.P. Editora, 1932), pp. 265-266; Wileman, Brazilian Yearbook, 1909, p. 807. 32. "Notas de Vivaldo Coaracy," PFAN, Caixa 41; Wileman's Brazilian Review (25 September 1917), p. 266; Simon Hanson, "The Farquhar Syndicate in South America," HAHR (August 1937): 315; PFBN, Drawer 55-51. 33. "Expropriação," PFAN, Caixa 41; Empreza de Informações Garantida, Brazil Railroad, p. 1; Wileman, The Brazilian Yearbook, 1909, pp. 779, 780; Review of Brazil (August 1928), pp. 28, 29; Hanson, "The Farquhar Syndicate." 34. Jornal do Commércio (26 December 1912), p. 1; Wileman, The Brazilian Yearbook, 1909, pp. 780-782,792,794; Leis do Brasil, decree 8,791, 1911; decree 9,454, 1912. 35. Jornal do Commércio, Retrospeto commercial 1914, p. 50; Frédéric Mauro, "Les investissementsfrançaisau Brésil (xixe et xxe siècles)," in La préindustrialisation du Brésil essais sur une économie en transition, 1830/50-1930/50 (Paris: Editions du Centre Nationale de la Recherche Scientifique, 1984), p. 147-151. 36. Alberto de Faria, a leading muckraker, often cited examples from the U.S. Progressives, e.g., Jornal do Commércio (26 December 1912), p. 10. Alberto Torres, a leading nationalist theorist, did likewise. See Adalberto Marson, "A ideologia nacionalista em Alberto Torres" (Ph.D. diss., Universidade de São Paulo, 1974), p. 83. 37. Revista de Comércio e Indústria (January 1918), p. 13; Monitor Mercantil (20 January 1918), p. 99. 38. Great Britain, Ernst Hambloch, Report, p. 200. 39. São Paulo, Presidente, Mensagem apresentado ao congresso legislativo de São Paulo, 14 July 1915, in São Paulo, Mensagens, p. 654. 40. Ibid., p. 727. 41. DGE, Anuário estatístico, 1939-1940, pp. 1364,1384; Villela and Suzigan, Política do governo, p. 424. 42. Some violent incidents include the burning of a station on the Leopoldina, the destruction of twenty kilometers of track on the Great Western and of ten tram cars and the gas works of the Bahia Tram and Power Company, the overturning of Rio Light's trams, and the burning of a station on the Brazil Railroad: Correio da Manhã (12 January 1909), p. 1, and (3 August 1916), p. 1; A Imprensa Itaocará (17 January 1909), p. 1; A Luta (17 October 1909), p. 1; Brazilian Review (10 February 1903), p. 69, and (19 August 1913), p. 867; O Comércio (8 August 1919), p. 1; Gauld, The Last Titan, pp. 84,214; Duglas Teixeira Monteiro, Os errantes do novo século (São Paulo: Duas Cidades, 1974), p. 31.

Notes to pages 102-107

193

43. Inspetoria Federal das Estradas, Estatística, 1912, p. xxxv; 1919, p. li; Central do Brasil, Relatório, 1917, p. vii; T. Carvalho to Epitácio Pessoa, 14 November 1921, EP, Pasta 44. 44. Revista de Indústria e Comércio (31 March 1920). North Americans did not finance any major railways. The Brazil Railway, though organized in the United States, had principally French and Belgian capital, with some British; see Empreza de Informações Garantida, Brazil Railroad, pp. 3-5. 45. Departamento Nacional de Indústria e Comércio, Sociedades mercantis, passim; Diário Oficial, 1914-1930, passim; Dudley Maynard Phelps, Migration of Industry to South America (New York: McGraw-Hill, 1936), pp. 34-36; J. F. Normano, "Joint Stock Companies and Foreign Capital in the State of Rio Grande do Sul," Harvard Business Review 9 (1930): 220; Mira Wilkins, The Maturing of Multinational Businessfrom1914 to 1970 (Cambridge: Harvard University Press, 1974), pp. 11, 154, 155. 46. "Brazil Railroad," PFAN, Caixa 41; W. C. Forbes to Bradley Palmer, Paris (?), 9 March 1916, PFAN, Caixa 41A. 47. W. C. Forbes to Bradley Palmer, Paris (?), 9 March 1916, PFAN, Caixa 41A; Empreza de Informações Garantida, Brazil Railroad, pp. 3-6; Wileman's Brazilian Review (25 April 1916), p. 247, and (3 April 1917), p. 250; Gauld, The Last Titan, pp. 115, 235; Brésil Economique, in the Gazeta de Notícias (24 February 1913), p. 8. 48. Empreza de Informações Garantida, Brazil Railroad, pp. 3-6. 49. Inspetoria Federal das Estradas, Estatística, 1907, p. xii; 1929-1930, p. 40. 50. Ibid., 1915, p. xix; 1929-1930, p. 40. 51. Presidente, Mensagem, 3 May 1896, pp. 140, 141. 52. Calculated fromDGE,Anuário estatístico, 1939-1940, pp. 1293,1412, and deflated by using the index of Contador and Haddad, "Produção real." 53. São Paulo, Presidente, Mensagem, 14 July 1908, pp. 388-391; 14 July 1909, p. 433; 14 July 1910, p. 514; A. Pena to J. Tibiriça, Rio, 26 May 1907, A.P. 1.1.330; Adolfo Augusto Pinto, História da viação pública de São Paulo, 1903, reprint (São Paulo: Governo do Estado, 1977), p. xii. 54. Estrada de Ferro Sorocabana, Relatório, 1924 (São Paulo: Casa Vanorden, 1924), p. 43; O Estado de São Paulo (18 April 1920), p. 10; São Paulo Northern Railroad Company, O caso da desapropriação da São Paulo Northern Railroad Company (Rio de Janeiro: Jornal do Commércio, 1920), pp. 65-67. 55. São Paulo, Presidente, Mensagem, 14 July 1930, pp. 134, 140. 56. São Paulo, Congresso Legislativo, Requerimento da São Paulo Northern Railway Company (Rio de Janeiro: Jornal do Commércio, 1921), pp. 7, 14, 16. 57. São Paulo, Presidente, Mensagem, 1 May 1924, p. 25; São Paulo, Secretaria da Fazenda, Relatório, 1928, p. 41; Romeiro, São Paulo, p. 30. 58. Ministério de Transportes Archive, Arquivo Nacional, Rio de Janeiro (hereafter MT), Maço 275-1919, Documents 107, 652; Presidente, Mensagem, 3 May 1910, pp. 708-710; Francisco Iglesias, Política económica do governo provincial mineira (1835-1889) (Rio de Janeiro: MEC, 1958), pp. 163, 164. 59. Monitor Mercantil (20 January 1918), p. 98; Duncan, Public and Private Operation, p. 99. 60. Clipping from the Gazeta de Notícias (21 October 1922), RS 22-10-21j; R.

194

Notes to pages 108-111

Soares to W. Bras, Belo Horizonte, 5 December 1924, RS 1924-04-22, in which Soares said that the Sul Mineira "has been the major concern of my government"; Wirth, Minas Gerais, pp. 59, 179; Romeiro, São Paulo, pp. 26, 45, 47. 61. Washington Luís to Getúlio Vargas, Rio, 2 August 1928, GV 1928.08.02; Inspetoria Federal das Estradas, Estatística, 1915, pp. vii-xix; 1929-1930, pp. 2140; Wileman's Brazilian Review (24 May 1928), p. 644. 62. Inspetoria Federal das Estradas, Estatística, 1929-1930, pp. 21-40. 63. Ibid., 1898, table 2; 1900, table 1; 1915, p. xxiv; 1929-1930, p. 308; 19301931, p. 15. This dynamic mirrors the reality for all railroads, as federally supervised track rose from 63 percent of the total in 1897 to 82 percent in 1930. The states (according to Love, São Paulo, p. 64, and Wirth, Minas Gerais, pp. 58,212) offered guarantees on most of their lines. 64. According to Lewis, "British Railway Companies," p. 418, tariffs on railroads in Argentina rose impressively after the war. DGE, Anuário estatístico, 1939-1940, p. 1338. 65. Calógeras, Problemas do governo, ρ. 23. 66. Quoted in Central do Brasil, Relatório, 1927, p. xix. 67. For some examples of this point of view, see Congresso, Documentos Parlamentares, Orçamento da viação, 1912, pp. 10-12; Fernando de Azevedo, Um trem corre para o oeste (São Paulo: Edições Melhoramentos, n.d.), pp. 140-147; Wileman's Brazilian Review (25 November 1925), pp. 1548, 1549. 68. The Sorocabana's fiscal success may be exaggerated because São Paulo's state government does not appear to have included the great cost of expanding the line's track to Santos in its statement of operating expenses. Wileman's Brazilian Review (25 November 1925), p. 1547; Inspetoria Federal das Estradas, Estatística, 1908-1929/30, passim 69. Costa, Introdução à memória, passim. 70. Fausto, Trabalho urbano, pp. 225-228. 71. This evaluation is based on a reading of the Relatórios of the Ministério de Viação e Obras Públicas, and of correspondence with the minister of transportation in RS and AP. Ministério da Viação e Obras Públicas, Dados biográficos, passim. 72. Hélio Jaguaribe, Political Development: A General Theory and a Latin American Case Study (New York: Harper & Row, 1973), p. 480. 73. DGE, Recenseamento, 1920,4, pt. 5, tomo 1, pp. 4,5; Inspetoria Federal das Estradas, Estatística, 1920, p. 152; 1929-1930, pp. 316-319. 74. Director Geral to Secretário do Estado de Negócios e Obras Públicas, Porto Alegre, 6 November 1929, OA 29.11.06/4; Minas Gerais, Secretaria de Agricultura, Anuário estatístico, 1922-1925, pp. 1158-1167. 75. Congresso, Documentos Parlamentares, Orçamento da viação, 1912, pp. 10-12. 76. Calculated from Inspetoria Federal das Estradas, Estatística, 1907, 1910, 1915, 1920, 1930, passim. 77. Ibid. The São Paulo Railroad's high number of employees was due to the steep grade its double track had to climb. 78. Inspetoria Federal das Estradas, Estatística, 1908-1930/31, passim; Central do Brazil, Relatório, 1917, p. vi. 79. Wileman's Brazilian Review (25 November 1925), p. 1549.

Notes to pages 113-117

195

80. Presidente, Mensagem, 3 May 1910, p. 711. According to Taunay, História do café, v. 9, p. 464, the Central charged 243 reis per ton for coffee, whereas the Minas and Rio Railroad charged 310 and the Leopoldina 450. 81. Central do Brasil, Relatório, 1917, p. xi; Ministério da Viação e Obras Públicas; Relatório, 1901, p. 224. 82. Brasil Ferro-Carril (31 May 1923), p. 179. This had already been a policy under the Empire. According totheAlmanakLaemmert, 1890, p. 1314, the Central reduced coffee freight rates 26 percent to 30 percent and lowered rates on transporting food from the interior to Rio. 83. Inspetoria Federal das Estradas, Estatística, 1907, p. xxiv; 1910, p. xxxi; 1915, p. xxxiii; 1920, p. xxxix. 84. Romeiro, São Paulo, p. 27, argued that the Union nationalized lines in São Paulo only after they became profitable. This is not true for his principal example, the Noroeste. According to Inspetoria Federal das Estradas, Estatística, 19061929, the line ran deficits both before and after nationalization. 85. Duncan, Public and Private Operation, p. 99; Azevedo, Um trem, pp. 140147; Ministério da Viação e Obras Públicas, Relatório, 1920, p. 8. Data on state spending calculated from idem, Inspetoria Federal das Estradas, Estatísticas, 19291930, p. 308; Flávio Azevedo Marques de Saes, As ferrovias de São Paulo, 18701940 (São Paulo: Editora HUICITEC, 1981), pp. 127-147. 86. Laerne, Brazil and Java, p. 192; Wilemaris Brazilian Review (25 November 1925), ρ. 1549; Central do Brasil, Relatório, 1927, ρ. 25. 87. The exactfigurefor 31 December 1929 was 1,916,077 contos and 4,441,050 pounds (Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatísticas, 1929-1930, p. 308). The dollar conversion was made using the average milréis quotation for the First Republic, U.S. twenty-three cents. When one includes profit-guarantee payments during the First Republic that exceeded 35 million pounds (Ministério da Viação e Obras Públicas, Relatório, 1898, 1900, passim; idem, Inspetoria Federal das Estradas, Estatísticas, 1907, 1910, 1915, 1920, 1925, passim; and 1929-1930, p. 309), interest on foreign loans of over 30 million pounds contracted for railroads (DGE, Anuário estatístico, 1939-1940, p. 1423), an internal debt that, according to Arthur Redfield, Brazil, Economic Conditions since 1913 (Washington, D.C.: GPO, 1920), p. 14, was estimated at 934,201 contos in 1915 with yearly interest payments of 37,707 contos, and the fact that the Ministério da Fazenda (Relatório, 1925, pp. 79-80) noted that 315,634 contos of railroad bonds were issued between 1915 and 1925, clearly total public expenditures for railroads exceeded $1 billion dollars. A conservative estimate breaks the investment down thus: Capital investment S 480,000,000 Railroad guarantees 170,000,000 Interest on the foreign debt 86,000,000 Interest on the internal debt 323,000,000 $ 1,059,000,000 88. Edward J. Teaffe, Richard L. Morrill, and Peter R. Gould, "Transport Expansion in Underdeveloped Countries: A Comparative Analysis," Geographical Review 53, no. 4 (October 1963): 503-505; Wileman, Brazilian Yearbook, p. 620;

196

Notes to pages 117-121

Dean, Rio Claro, pp. 52-54; Holloway, Immigrants, pp. 151, 156. The lack of an adequate railroad system in Colombia retarded its coffee production and kept landholdings on a small scale: William McGreevey, An Economic History of Colombia, 1845-1930 (Cambridge: At the University Press, 1971), p. 279. 89. John Coatsworth, "Railroads, Landholding and Agrarian Protest in the Early Porfiriato," HAHR 54 (1974); 48-71; Walter Goldfrank, "The Ambiguity of Infrastructure: Railroads in Prerevolutionary Mexico," Studies in Comparative International Development 11, no. 3 (1976): 3-24. 90. Stein, Vassouras, pp. 110-112; Dean, Rio Claro, p. 55; DGE, Anuário estatístico, 1939-1940, pp. 1298, 1304. 91. DGE, Anuário estatístico, 1908-1912, v. 2, p. xxiii. 92. Nathaniel Leff, Underdevelopment and Development in Brazil, v. 1, pp. 147-151. 93. Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatísticas, 1910, p. xxxii; 1920, p. xxxviii; John Coatsworth, El impacto económico de los ferrocarriles en el Porfiriato: crescimiento y desarrollo (Mexico City: Secretaría de Educación Pública, 1976), v. 2, p. 19. Brazilian railroad statistics only enumerate exports equal to 85 percent to 90 percent of all Brazilian exports. I assumed that the other 10 percent to 15 percent weighed the same as the average of the enumerated exports (given in DGE, Anuário estatístico, 1939-1940, pp. 1359, 1362) and traveled on railroads with the same frequency. Coatsworth also calculated exports by weight. 94. Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatísticas, 1920, p. xxxviii; Leff, Underdevelopment, v. 1, p. 148; Ellis Júnior, A evolução, pp. 226, 227. 95. Leff, Underdevelopment, v. 1, p. 148. Even São Paulo's private railroads gave preferential treatment to foodstuffs in the last quarter of the nineteenth century: Almanak Laemmert, 1890, p. 1314; Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatísticas, 1907, pp. 147-150. 96. W. W. Rostow, The Stages of Economic Growth (Cambridge: At the University Press, 1960), pp. 38,55. Both Albert Fishlow, American Railroads and the Transformation of the Ante-Bellum Economy (Cambridge: Harvard University Press, 1965), and Robert Fogel, Railroads and American Economic Growth (Baltimore, Md.: Johns Hopkins University Press, 1964), find that railroads' contribution to growth was exaggerated, though Fishlow credits it with a greater impact than does Fogel. For the state's role in Russia and Japan, see Gershenkron, Economic Backwardness, pp. 26,28,126-132; William Lockwood, "Foundations of Japanese Industrialism," in Barry Supple, ed., The Foundation of Economic Growth (New York: Random House, 1963), pp. 382-385. 97. DGE, Anuário estatístico, 1908-1912, v. 2, p. xxiii; Diário oficial (9 September 1928), supp. 9, pp. 37-41; Leis do Brasil, leis 12,943, 12,944 (30 March 1918); Presidente, Mensagem, 1918, p. 477; Câmara dos Deputados, Anais, 1917, v. 5, p. 931; Memorandum of the Belgo-Mineira Steel Company in RS 23-01-08/3; Lloyd Brasileiro, Relatório, 1924, p. 29. 98. Brasil, Divisão de Geologia e Mineralogia, "Minerías de ferro e a indústria siderúrgica," MT, maço 266, 1919, doc. 3123-19; Lloyd Brasileiro, Relatório, 1919, p. 35; 1923, p. 31; Estrada de Ferro Central do Brasil, Relatório, 1907, p.

Notes to pages 121-131

197

182; São Paulo Secretaria de Agricultura, Indústria e Comércio, O café, p. 7. 99. Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatísticas, 1920, p. xxxiii; Ministério da Viação e Obras Públicas, Relatório, 1920, p. 25; DGE, Recenseamento, 1920, v. 2, pt. 1, pp. lxxvi, lxxx, cix. 100. Calculated from Ministério da Viação e Obras Públicas, Inspetoria Federal das Estradas, Estatísticas, 1929-1930, p. 308, using U.S. twenty-three cents for dollar conversions; Wileman's Brazilian Review (11 June 1918), p. 552; (31 December 1926), p. 823. 101. See 87; also, Diana Maria de Faro Leal Diniz, "Rio Claro e o café: desenvolvimento, apogeu e crise, 1850-1900" (Ph.D. diss., Faculdade de Filosofia, Ciências e Letras de Rio Claro, 1973), pp. 165-166; Wileman, Brazilian Yearbook, pp. 799, 800; Wileman's Brazilian Review (1 August 1916), p. 472. 102. According to Colin M. Lewis, "Railways and Industrialization: Argentina and Brazil, 1870-1929," p. 218, native construction subcontractors played a larger role in Brazil than they did in Argentina. 103. Thomas W. Merrick and Douglas H. Graham, Population and Economic Development in Brazil, 1800 to the Present (Baltimore: Johns Hopkins University Press, 1979), p. 124. For a discussion of the Madeira-Mamoré, see Gauld, The Last Titan. 104. Martin T. Katzman, "The Brazilian Frontier in Comparative Perspective," Comparative Studies in Society and History 17, no. 3 (July 1975): 217-273,279, 280; Jornal do Commércio (6 March 1921), p. 9; Cincinato Braga, Intensificação econômica no Brasil (São Paulo: Estado de São Paulo, 1918), p. 38. 105. Stein, Vassouras, pp. 111, 112. 106. Ellis Júnior, A evolução, pp. 113,114; Romeiro, São Paulo, pp. 18,26,46, 47. 107. Jornal do Commércio, Retrospeto commercial, 1925, p. 33. 108. Stephen Hymer, "The Political Economy of the Gold Coast and Ghana," in Government and Economic Development, ed. G. Ranis, p. 162 (New Haven, Conn.: Yale University Press, 1971); Mitchell Selegson, Peasants of Costa Rica and the Development of Agrarian Capitalism (Madison: University of Wisconsin Press, 1980), pp. 52-54. 5. Industrialization 1. Gerschenkron, Economic Backwardness', Trimberger, "A Theory of Elite Revolutions." 2. See Steven Topik, "State and Economy: Brazil under the Empire and the Republic," Technical Papers series, no. 47 (Austin, Tex.: Institute of Latin American Studies, Office for Public Sector Studies, 1985); Cano, Raizes, pp. 121— 126. 3. Dean, Industrialization, pp. 34-48; Manuel Diegues Júnior, Imigração, urbanização, industrialização (Rio de Janeiro: Centro Brasileiro de Pesquisas Educacionais, 1964), pp. 211, 231. 4. For the capitalist mentality of Brazilian planters, see Pedro Carvalho de Mello, "Aspectoseconômicosda organização do trabalho da economía cafeeira do Rio de Janeiro, 1850-1888," Revista Brasileira de Economia 32 (1978): 19-67; idem and Robert Sienes, "Análise econômica da escravidão no Brasil," Economia brasileira,

198

Notes to pages 131-134

uma visão histórica, ed. Paulo Neuhaus, pp. 89-122 (Rio de Janeiro: Editora Campus, 1980). 5. Flávio R. Versiani and Maria Tereza R. O. Versiani, "A industrialização brasileira antes de 1930: uma contribuição," in Flávio Rabelo Versiani and José Roberto Mendonça, eds., Formação económica do Brasil, a experiência da industrialização, p. 126 (São Paulo: Edição Saraiva, 1978); F. Versiani, "Industrialização e economia de exportação: a experiência brasileira antes de 1914," Revista Brasileira de Economia 34 (1980): 17, 18. 6. Rio News (28 March 1893), p. 1. 7. Dean, Industrialization, p. 12. 8. Albert Fishlow, "Origens e consequências da substituição de importações no Brasil," Estudos Económicos 2 (1972):9. 9. Departamento Nacional de Indústria e Comércio, Sociedades mercantis, passim. 10. Nelson Werneck Sodré, História da burguesia brasileira (Rio de Janeiro: Civilização Brasileira, 1976), p. 176; Hélio Silva, A República não esperou o amanhecer (Rio de Janeiro: Civilização Brasileira, 1972), p. 76. 11. Villela and Suzigan, Política do governo, p. 127. 12. Fishlow, "Origens," p. 7. 13. Ministério da Fazenda, Relatório, 1890, p. 194. 14. F. P. Mayrink to Rui Barbosa, Rio, 22 August 1890, CRB; Freire, Banco do Brasil, p. 171; Viana, Banco do Brasil, pp. 603, 604; Veiga Filho, Estudo econômico, p. 25; Centro Industrial do Brasil, Boletim, 1904-1905; D. Burke to Department of State, Salvador, Bahia, 26 March 1891, United States, Department of State, "Dispatches from U.S. Consuls in Bahia," National Archives, Records of the Department of State (hereafter NA), Record Group 56, microfilm. Werner Baer and Annibal Villela are wrong when they argue, in "Alguns comentários sobre as origens e consequências da substituição de importações no Brasil de Albert Fishlow," Estudos Económicos 3(1973): 130, that banks provided industry almost no credit in the 1890s. 15. Pan American Union, Bulletin (July 1895), pp. 13-14. 16. Quoted in Luz, A luta, p. 169. 17. Ministério da Fazenda, Relatório, 1893, p. 123; Centro Industrial do Brasil to Afonso Pena, Rio, n.d., AP 11-1.2.1382. 18. Custódio de Mello in Congresso Constituyente, Anais, 1890, v. 3, p. 52; also see Câmara dos Deputados, Anais, 1891, v. 1, pp. 222-224. 19. See Steven Topik, "Informal Empire? The U.S.-Brazilian Trade Treaty of 1891" (M.A. thesis, University of Texas, Austin, 1974). 20. Congress, Congressional Record of the Fifty-first Congress, 1889-1890, v. 21, pp. 4389-4392. 21. D. Burke to Department of State, Salvador, Bahia, 23 May 1891, NA. 22. D. Burke to Department of State, Salvador, Bahia, 21 June 1891; and H. Borsted to Department of State, Recife, Pernambuco, 12 February 1890, NA; Congresso, Documentos Parlamentares, Impostos interestaduais, 1900-1911 (Paris: Typ. Ailland, Alves & Cia., 1914), passim; Centro Industrial do Brasil, Boletim, 1907, pp. 17-28; idem, A campanha contra os importos interestadoaes (Rio de Janeiro: Typ. Jornal do Commércio, 1929), p. 11.

Notes to pages 134-137

199

23. Câmara dos Deputados, Anais, 1892, v. 3, pp. 134-135; Jornal do Commércio, Retrospeto commercial, 1891, pp. 4, 5. 24. Congresso, Documentos Parlamentares, Discursos parlamentares (Alexandre José Barbosa Lima) (Brasilia: Câmara dos Deputados, 1963), pp. 118, 123. 25. As federal deputy and naval lieutenant Augusto Vinhães proclaimed in Câmara dos Deputados, Anais, 1892, v. 2, p. 464, Brazil should "put aside the suggestions of European capitalists who are interested in maintaining the subservience of Brazil to the industry of England and other countries." 26. Ministério da Justiça, Relatório, 1892, p. 3. See, for example, O Jacobino (19 September 1894, 29 September 1894, 10 November 1894); O Nativista (14 June 1895), pp. 1, 2; (22 September 1895), p. 2. 27. Gazeta de Comércio e Finanças (14 March 1896), p. 3; Wileman, Brazilian Currency, pp. 194, 260. 28. Dean, Industrialization, pp. 19-21; Richard Graham, "A British Industry in Brazil: Rio Flour Mills, 1886-1920," Business History 8 (1966): 13-38; Stein, Brazilian Cotton Manufacture, pp. 35-44. 29. Presidente, Mensagem, 12 May 1892, p. 19; Câmara dos Deputados, Anais, 1892, v. 3, p. 134; A Metralha (23 November 1893), p. 2. 30. Richard Graham, "Government Expenditures and Political Change in Brazil, 1880-1899: Who Got What," Journal of Interamerican Studies and World Affairs 19 (1977): 339-368. 31. Ministério da Fazenda, Relatório, 1893, pp. 4, 5; Luz, A luta, pp. 178-180; Ε. Η. Conger to Department of State, Rio, 10 February 1892, NA. The tariff was not as aggressively proindustry as it appeared. Floriano in his message to Congress in 1892 (p. 19) explained that he sought higher duties to rectify a budgetary deficit from the previous year. Moreover, because of the milréis's decline, real tariff protection was still lower under Floriano than it had been in the Empire's last years. 32. Freire, Banco do Brasil, p. 195. 33. Wileman, Brazilian Currency, pp. 215-216. 34. Ministério da Fazenda, Relatório, 1892, p. 17; Câmara dos Deputados, Anais, 1892, ν. 3, p. 137. 35. Presidente, Mensagem, 1892, p. 22. 36. Ministério da Fazenda, Relatório, 1892, p. 55; Câmara dos Deputados, Anais, 1892, v. 3, p. 75. 37. Câmara dos Deputados, Anais, 1892, v. 3, p. 150, 217; v. 4, pp. 300, 329, 330. 38. Ibid., v. 3, pp. 142-147. 39. Ibid. 40. Ibid., pp. 138, 139, 171. Flávio Versiani notes in "Industrialização e economia de exportação: a experiência brasileira antes de 1914," Revista Brasileira de Economia 34 (1980): 23, that the Mascarenhas textile company recorded dividends of over 20 percent annually in the 1890s. It is not surprising that it opposed the aid to industry bill. 41. Afonso Pena to Rodrigues Alves, Ouro Preto, 20 April 1892, AP 2-1.1.513. 42. Câmara dos Deputados, Anais, 1892, v. 2, p. 464. 43. The Jacobin press even called for the nationalization of commerce. A bill was introduced into Congress but was found unconstitutional.

200

Notes to pages 137-142

44. Leis do Brasil, Decreto 1,167, 17 December 1892; Jornal do Commércio, Retrospeto commercial, 1892, p. 9. 45. Leis do Brasil, Decreto 183 C, 23 September 1893. 46. Ministério da Fazenda, Relatório, 1895, p. 112; Congresso, Documentos Parlamentares, Meio circulante, 1893-1895, p. 11; Câmara dos Deputados, Anais, 1892, v. 3, pp. 217, 218. 47. Calculated from DGE, Anuário estatístico, 1939-1940, p. 1410. 48. Stein, Brazilian Cotton Manufacture, p. 88; Fishlow, "Origens," p. 13. 49. Wileman, Brazilian Currency, p. 240; Albert Fishlow, "Algumas observações adicionais sobre a discussão," Estudos Econômicos 3 (1973): 148. 50. Câmara dos Deputados, Anais, 1892, v. 3, p. 134. 51. Ministério da Fazenda, Relatório, 1899, p. xiii. 52. Veiga Filho, Relatório, pp. 58, 73, 75. 53. Serzedelo Correia, O problema, p. 6. 54. Veiga Filho, Estudo econômico, p. 131; Associação Comercial de Rio de Janeiro, Commissão, p. 5. 55. Villela and Suzigan, Política do governo, p. 418. 56. Guanabara, Campos Sales, pp. 298, 302. 57. Frank R. Rutter, "Tariff Systems of South American Countries," Tariff Series, 34 (Washington, D.C.: GPO, 1916), p. 14. The vale ouros were a monopoly of the Banco do Brasil and approximated the market value of the milréis. 58. If the ironwork were actually worth 800 reis a kilo in 1898, presumably its import price by 1906 would have inversely accompanied therisein the value of the milréis of 123 percent; its market value would then be only 359 reis a kilo, but it would still pay 400 reis per kilo duties (50 percent of 800 reis), if there were no reappraisal. Affonso de Toledo Bandeira de Mello reported in Politique Commerciale du Brésil (Rio de Janeiro: Departamento de Estatística e Publicidade, 1935), ρ. 86, that the official value of many imports remained constant between 1900 and 1928. 59. Centro Industrial do Brasil, Boletim, 1904-1905, pp. 35, 64. 60. Contador and Haddad, "Produção real," p. 434. Eulália Lobo estimates the decline at 34 percent in Villela and Suzigan, Política do governo, p. 424. 61. Versiani and Versiani, "Industrialização e economia," p. 36; Fishlow, "Algumas observações," p. 149. 62. Stein, Brazilian Cotton Manufacture, p. 99. TheDGE'sAnuário estatístico, 1908-1912, v. 2, p. 135, supports the contention that the second half of the Campos Sales period was not as catastrophic as is often argued. The number of new corporations constituted in 1900 and 1901 compares favorably with the prosperous years of 1904 and 1905, and liquidations and bankruptcies were less than in the second half of the decade. 63. Quoted in Guanabara, Campos Sales, p. 300. 64. Ibid., p. 308. Rutter in his 1916 report for the U.S. Department of Commerce, "Tariff Systems," p. 115, reported that "the Brazilian tariff is primarily dictated by considerations of revenue; it contains, however, many features intended to promote the economic welfare of the country. This is accomplished in part by placing higher duties on thefinishedproducts of industries established or about to be established in the country and still more by the exemptionfromduties of articles required by new industries."

Notes to pages 142-145

201

65. Ministério da Fazenda, Relatório, 1904, p. vi. 66. José Gomes Pinheiro Machado to Afonso Pena, Rio, 6 October 1905, AP 1.2.646. 67. Congresso Brasileiro de Expansão Econômica, Congresso Brasileiro de Expansão Económica, reunido no Rio 17 de julho a 24 de agosto de 1905 (Rio de Janeiro: Imp. Nacional, 1906), pp. 152, 153. 68. Guanabara, Campos Sales, pp. 382, 383, 427; Ministério da Fazenda, Relatório, 1904, p. xii; Edgard Carone, O Centro Industrial do Brasil (Rio de Janeiro: Editora Cátedra, 1978), p. 72; Villela and Suzigan, Política do governo, p. 418. 69. E. Lobo, História do Rio, v. 2, pp. 502, 504; Fausto, Trabalho urbano, pp. 53-59; Sheldon Miram, "Labor and the Left in Brazil, 1890-1930: A Movement Aborted," presented at the meeting of the Pacific Coast Council on Latin American Studies, October 1975; Vianna, Liberalismo, p. 53. 70. Relatório da Comissão da Indústria Extractiva, Cidade de Minas, August 1899, AP 1-1.530; João Ribeiro to A. Pena, Juiz da Fora, 18 October 1899, AP 12.1.220. 71. Afonso Pena to Antonio Francisco Azevedo, Belo Horizonte, 30 September 1905, AP 2-1.1.520. 72. Correio Paulistano (13 February 1906), p. 1. 73. Joan Bak, "Some Antecedents of Corporatism: State Economic Intervention and Rural Organization in Brazil" (Ph.D. diss., Yale University, 1977), pp. 44,46, 57. 74. Calculated from DGE, Anuário estatístico, 1939-1940, pp. 1293, 1297, 1298, 1336, 1340, 1344, 1346, 1359; Contador and Haddad, "Produção real," p. 432. 75. Afonso Pena to Davi Campista, Rio, 18 June 1907, AP 1.1.335. 76. Rio de Janeiro, Presidente, Mensagem apresentada ao congresso legislativo do Rio de Janeiro, 1 August 1905, p. 12. 77. Quoted in Luz, A luta, p. 193. 78. Correio da Manhã (23 October 1908), p. 1. 79. Federal Trade Commission, Report on Trade and Tariffs in Brazil, Uruguay, Argentina, Chile, Bolivia, and Peru (Washington, D.C.: GPO, 1916), p. 57; Manoel Jansen Müller, Ainda sobre a tarifa das alfándegas (London: Kegan Paul, Trench, Trübner & Co., 1914), p. 4; [Inspector, Belém Customs House], A receita aduaneira aperfeiçoamento na arrecadação (Belém, Pará: Tavares Cardoso, 1919), pp. 1, 12. 80. Jornal do Commércio, Retrospeto commercial, 1925, p. 23; Banco do Brasil, Relatório, 1911, p. 12; Ministério da Fazenda, Relatório, 1918, p. viii. 81. Revista de Indústria e Comércio (31 March 1920). 82. Calculated from information on incorporating companies in Leis do Brasil, 1889-1915. 83. Brazilian Review (16 July 1907), p. 822; Centro Industrial do Brasil, Boletim, 1904-1905, p. 368; "Expropriação da Estrada de Ferro São Paulo-Rio Grande do Sul," Rio (3 September 1940), PFAN, Caixa 41; Indústria e Comércio (30 September 1913), n.p.; British Chamber of Commerce for São Paulo and Southern Brazil, E. Lloyd Rolfe, Report on Brazil's Trade and Industry in 1918

202

Notes to pages 146-149

with Special Reference to the State of São Paulo (São Paulo: British Chamber of Commerce for São Paulo and Southern Brazil, 1919), pp. 23, 56, 57. DGE, Recenseamento 1920, v. 5, pt. 3, p. xiv; Warren Dean, "A industrialização durante a República Velha," in História geral da civilização brasileira, ed. Boris Fausto, ν. 8, pp. 260-262 (São Paulo: DIFEL, 1975); Ε. Lobo, História do Rio, v. 2, pp. 494, 495. 84. Centro Industrial do Brasil, O Brasil: suas riquezas naturais, suas indústrias, v. 1, pp. 260,261 (Rio de Janeiro: Impressores M. Orosco & Co., 1907); Stein, Brazilian Cotton Manufactures, pp. 101-104; DGE, Recenseamento, 1920, v. 2, pt. 1, p. lxix. 85. DGE, Recenseamento, 1920, v. 5, p. 69; Baer, A industrialização, p. 291. 86. André Gunder Frank, Capitalism and Underdevelopment in Latin America (New York: Monthly Review Press, 1969), pp. 170,171; Arthur H. Redfield, Brazil: A Study ofEconomic Conditions since 1913 (Washington, D.C.: GPO, 1920), pp. 61,62; Cano, Raizes, pp. 154-194; Dean, Industrialization, pp. 99-110; Fishlow, "Origens," pp. 18, 26; Versiani and Versiani, "A industrialização brasileira," pp. 138-142. 87. The Economist (19 February 1921), pp. 325, 326; Centro Industrial do Brasil, Relatório, 1918-1920, p. 174; Monitor Mercantil (4 May 1918), p. 731;(13 January 1918), p. 64. 88. German torpedoing of Brazilian ships brought the threat of war home. The cultural separation of Teutobrazilians in the country's South and the German campaign to reunite "Gross Deutschland" caused Brazilians to fear invasion in collaboration with a Teuto fifth column. 89. Câmara dos Deputados, Anais, 1912, v. 13, p. 569; Revista do ClubeMilitar (20 January 1927), p. 90; A Defesa Nacional (10 July 1916), p. 306; (10 April 1923), pp. 569-571; Revista Militar (March 1917), p.1;A "43"(12 March 1918), p. 19. Frank McCann makes the same argument in "The Formative Period of Twentieth Century Brazilian Army Thought, 1900-1922," HAHR 64 (November 1984): 741. 90. A Defesa Nacional, no. 3 (1915), p. 180; Jornal do Commércio (17 November 1917), p. 4; Olavo Bilac, A defesa nacional (Rio de Janeiro: Liga de Defesa Nacional, 1917), pp. 7-26; Raimundo Magalhâes Júnior, Olavo Bilac (Rio de Janeiro: Comp. Editora Americano, 1974), p. 370. 91. Gil Blas (28 August 1919), n.p.; (28 January 1920), n.p.; (30 April 1920), n.p.; Alvaro Bomilcar da Cunha, A política no Brasil ou nacionalismo radical (Rio de Janeiro: Leite, Ribeiro & Maurillo, 1920), ρ. 140. 92. The Ipanema Mill was a burden on the federal budget because of its deficits and inability to compete with imports (it produced only three metric tons of pig iron a day). In 1895 it was offered to private investors but found no takers (Ministério da Viação e Obras Públicas, Relatório, 1897, p. 135). 93. Leis do Brasil, lei 8,019, 19 May 1910; lei 947A, 14 November 1910; lei 2,356, article 71, 31 December 1910; Jornal do Commércio (10 November 1912), p. 3; Werner Baer, The Development of the Brazilian Steel Industry (Nashville, Tenn.: Vanderbilt University Press, 1969), pp. 48-52; Congresso, Diário oficial (9 September 1928), supp. 9, pp. 37-41. 94. Jornal do Commércio (10 November 1912), p. 13.

Notes to pages 149-152 203 95. Presidente, Mensagem, 1926, p. 152. 96. Leis do Brasil, decreto 3,316, article Ia, c, 16 August 1917. 97. Ibid., lei 12,943,12,944, 30 March 1918; Presidente, Mensagem, 1918, p. 477; Câmara dos Deputados, Anais, 1917, v. 5, p. 931; Memorandum of the BelgoMineira Steel Company, RS 23-01-98/3. 98. Percival Farquhar to Andrew Mellon, Rio, 16 August 1937, PFAN 55309.1-32-29; Congresso, Diário oficial, supplement 9 (9 September 1928), pp. 5,6, 12,20, 37; Brasil Ferro-Carril (3 January 1924), p. 2; Ε. Pessoa, Pela verdade, pp. 377-399. For more on the later problems with Itabira, see Baer, The Development, pp. 66-68; John Wirth, The Politics of Brazilian Development (Stanford, Cal.: Stanford University Press, 1970); A. Mellon to P. Farquhar, 16 August 1937, PFAN 55.309, 1-32-29. 99. Estado de São Paulo (8 January 1924), p. 3. 100. Leis do Brasil, lei 4,801, 9 January 1924; Estado de São Paulo (8 January 1924), p. 3; Brasil Ferro-Carril (10 January 1924), p. 73. 101. Câmara dos Deputados, Anais, 1912, v. 16, p. 35. 102. Jornal do Commércio (17 March 1918), p. 5. 103. Peter S. Smith, "Oil and Politics in Modern Brazil" (Ph.D. diss., University of New Mexico, 1969), pp. 16-18. 104. Presidente, Mensagem, 1922, p. 107. 105. Leis do Brasil, lei 4,241, art. 79, 5 January 1921; Maurício Vaitsman, O petróleo no Império e na República (Rio de Janeiro: Empreza Gráfica "O Cruzeiro," 1948), p. 55. 106. Parecer de Deputado Ildefonso Simões Lopes apresentado à Comissão de Agriculture da Câmara dos Deputados, 5 July 1927, OA 27.07.30tt; Love, São Paulo, p. 66; Monitor Mercantil (1 February 1930), p. 160; Villela and Suzigan, Politica do governo, pp. 416-417; Wirth, Minas Gerais, pp. 60-62. 107. Constitutional amendment of 1926, article 72, no. 17b, in Adriano Campanhole and Hilton Lobo Campanhole, Todas as constituições do Brasil (São Paulo: Editora Atlas, 1971). 108. P. S. Smith, "Oil and Politics," pp. 25, 27; Marcos Kaplan, "Política del petróleo," Desarrollo Económico 12 (1972): 3-24. 109. Estado do Minas (5 February 1920), p. 1; Brazil Quarterly (1916), p. 61; João Pandiá Calógeras, As minas do Brasil (Rio de Janeiro: Imp. Nacional, 1904), p. 474; Robert W. Dunn, United States Foreign Investment (New York: Β. W. Huebsch & Viking Press, 1926), p. 68; Redfield, Brazil, p. 41. 110. Jornal do Commércio (19 January 1922), p. 5; Wileman's Brazilian Review (24 April 1930), pp. 550-552; Maria José Santos et al., Aspectos do crescimento da economia brasileira, 1889-1969 (Rio de Janeiro: Fundação Getúlio Vargas, 1971), p. 246. 111. Correio da Manhã (5 July 1907); A Tribuna (4 July 1907). 112. DGE, Recenseamento, 1920, v. 5, pt 3, pp. xvi-xxii, 77; Correio da Manhã (21 August 1916), p. 3; Ministério da Fazenda, Diretoria de Estatística Comercial, Comércio exterior do Brasil, 1919-1923; and idem, 1930 (Rio de Janeiro: Typ. da Estatística Comercial, 1928, and Departamento Nacional de Estatística, 1933), passim; Moody's Investment Service, Moody's Public Utilities, 1931 (Norwalk, Conn., 1931), pp. 840, 1002, 1480; idem, 1954, pp. 1474, 1473.

204 Notes to pages 152-156 113. Federal Trade Commission, Report on the Supply of Electrical Equipment and Competitive Conditions (Washington, D.C.: GPO, 1928); Wileman's Brazilian Review (3 October 1929), p. 1130; Gauld, The Last Titan, p. 87; Phelps, Migration, p. 214; John Timothy Wholihan, "An Analysis of the Development of Selected Utility Services of Brazil" (Ph.D. diss., American University, 1973), p. 62. For more on the international electrical cartel and its effect on Brazil, see Richard Newfarmer and Steven Topik, "Testing Dependency Theory: A Case Study of Brazil's Electrical Industry," in The Geography of Multinationals: Studies in the Spatial Development and Economic Consequences of Multinational Corporations, ed. Michael Taylor and Nigel Thrift (London: Croom Helm, 1982). 114. Pan American Union, Bulletin, 1923, p. 199; Leis do Brasil, decreto 17,599, 13 December 1926; Pessoa, Pela verdade, pp. 591, 592; Presidente, Mensagem, 1919, p. 131; idem, 1924, p. 9. 115. Epitácio Pessoa to Homero Baptista, Rio, 22 June 1920, EP, pasta 43; Centro Industrial do Brasil, Relatório, 1918-1920, pp. 17-27, 37-41; Leme, A ideologia, pp. 78, 82; Baer and Villela, "Alguns comentários," p. 132. 116. Contador and Haddad, "Produção real," pp. 432-434; Villela and Suzigan, Política do governo, p. 437. 117. Great Britain, Department of Overseas Trade, Irving, Report, p. 16; Oliver Onody, "Quelque aspects historiques des capitaux estrangers au Brésil," in Colloques Internationaux, Centre National de la Recherche Scientifique, L'Histoire quantitative du Brésil de 1800 ά 1930 (Paris: Editions du CNRS, 1973), p. 281. 118. Presidente, Mensagem, 1929, p. 58. 119. Brazilian Business (June 1921), pp. 9, 10; (September 1923), p. 57; Herbert Feis, Europe, the World's Banker (London: Oxford University Press, 1931), pp. 30,31; Leme, A ideologia, pp. 82, 83; Rippy, British Investment, p. 157; U.S. Department of Commerce, United States Investments in Latin American Economies (Washington, D.C.: GPO, 1955), p. 161; Wilkins, The Maturing, pp. 154-155; Wileman's Brazilian Reveiw (20 October 1927), p. 1347; (22 May 1930), p. 682. 120. Normano, "Joint Stock Companies," p. 220; Phelps, Migration, p. 15. 121. Congresso, Diário oficial (16 May 1926), p. 9991; Phelps, Migration, p. 5; Wilkins, The Maturing, p. 72. 122. Phelps, Migration, pp. 8, 21, 26. 123. Brazilian Business (September 1923), p. 57; Monitor Mercantil (9 February 1924), p. 205; Wileman's Brazilian Review (5 July 1928), p. 860. 124. São Paulo, Presidente, Mensagem, 14 July 1930, p. 23; Jornal do Commércio, Retrospeto commercial, 1929, p. 51; Villela and Suzigan, Política do governo, pp. 169-172,288,418,419,437; Wileman's Brazilian Review (17 March 1927), p. 325; Stein, Cotton Manufacture, p. 121. 125. DGE, Recenseamento, 1920, v. 2, pt. 1., pp. xxviii-xxxii, ci, xcv. 126. Frederick Stirton Weaver, Class, State and Industrial Structure (Westport, Conn.: Greenwood Press, 1980), p. 98. 127. DGE, Recenseamento, 1920, v. 2, pt. 1, pp. xvi-xx. 128. Ibid., pp. xxvii-xxix; Monitor Mercantil (January 1920), p. 64; Leis do Brasil, lei 17,492, 27 October 1926. Federal policy had undermined rubber manufactures early on. The 1900 tariff stipulated that the president of Brazil could

Notes to pages 156-165

205

grant 20 percent duty reductions in return for reciprocal reductionsfroma trading partner. In 1904 Rodrigues Alves granted the United States reductions on a host of goods, one of them rubber manufactures (Rutter, "Tariff System," p. 121; DGE, Recenseamento, 1920, v. 2, pt. 1, pp. xxix-xxx). 129. DGE, Recenseamento, 1920, v. 2, pt 1, pp. xxvii-xxxii, ci, xcv; João Lindolpho Câmara, Projecto do códego aduaneiro (Rio de Janeiro: Imp. Nacional, 1929), p. 98; Leff, The Brazilian Capital Goods Industry, pp. 8,16, argues that there was a significant native capital-goods industry, albeit unsophisticated, before 1930. 130. Baer, Industrialization, pp. 265, 266; Jornal do Commércio, Retrospeto commercial, 1925, p. 39; Baer, The Development, p. 61. 131. Gauld, The Last Titan, p. 297, maintains that "so small is the oligarchy in Brasil that Percival Farquhar knew or once employed or his aides once bribed a substantial percentage of its members." 132. The case of the northeastern industrialist Delmiro Gouveia, whose factory was purchased and dismantled by a British firm, is most often cited. See Mauro Mota, Quem foi Delmiro Gouveia (São Paulo: Arquimedes Edições, 1967). For foreign loans that required that goods be purchased in the home country, see Hurley, Banking and Credit, pp. 47, 48. 133. Wileman's Brazilian Review (23 June 1927), pp. 792, 793. 6. Conclusion 1. A colloquium held in October of 1980 by the Centro de Pesquisas e Documentação (CPDOC) of the Fundação Getúlio Vargas in commemoration of the fiftieth anniversary of the 1930 Revolution revealed a high degree of unanimity on the part of specialists that 1930 did not mark a sharp watershed. Moreover, the economic and political crises were viewed as relatively unrelated. 2. Love, São Paulo, pp. 177, 178, 184. 3. E. Bradford Burns, A History of Brazil, p. 375. 4. Rowe observed in Studies, p. 28, that "it must not, however, be supposed that... [wealthy planters] are the politicians of São Paulo. On the contrary, politics throughout Brazil is a separate and well-defined profession which has its own exclusive sphere of activity. The political leaders are farfrombeing puppets of what may be termed 'political planters.'" 5. It should be pointed out, however, that as Gunnar Myrdal notes in Beyond the Welfare State: Economic Planning and Its International Implications (New Haven, Conn.: Yale University Press, 1960), p. 23, economic interventions even in developed countries havefrequentlybeen enacted as responses to crises by people ideologically opposed to intervention. 6. Nora Hamilton, The Limits of State Autonomy (Princeton, N.J.: Princeton Univeristy Press, 1982), p. 24. 7. For views arguing that economic nationalism was a post-1930 phenomenon, see E. Bradford Burns, Nationalism in Brazil: A Historic Survey (New York: Praeger, 1968); and Ianni, Estado e planejamento, pp. 60, 61. 8. Wallerstein "The Rise and Future Demise," p. 403. 9. The servicing of the foreign debt rose from 8 percent to 16 percent in the period; however, the federal government was not amortizing much of its debt in the 1920s because of the second Funding Loan. Hence, foreign debt obligations, as opposed to expenditures, were close to 20 percent of exports.

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Selected Bibliography

and Papers Afonso Pena Archive, Arquivo Nacional, Rio de Janeiro Rui Barbosa Archive, Fundação Casa Rui Barbosa, Rio de Janeiro Epitácio Pessoa Archive, Instituto Histórico e Geográfico Brasileiro (IHGB), Rio de Janeiro Floriano Peixoto Archive, Arquivo Nacional, Rio de Janeiro FP GS General Solon Archive, IHGB, Rio de Janeiro Getúlio Vargas Archive, CPDOC, Fundação Getúlio Vargas (FGV), GV Rio de Janeiro JRIHGB José Carlos Rodrigues Archive, IHGB, Rio de Janeiro MT Ministério de Transportes Archive, Arquivo Nacional, Rio de Janeiro United States, Department of State, "Dispatches from U.S. Consuls in NA Bahia," 1890-1895, National Archives (NA), Records of the Department of State, Record Group (RG) 56, microfilm Oswaldo Aranha Archive, CPDOC, FGV, Rio de Janeiro OA Visconde de Ouro Preto Archive, IHGB, Rio de Janeiro OP Percival Farquhar Archive, Arquivo Nacional, Rio de Janeiro PFAN Percival Farquhar Archive, Biblioteca Nacional, Rio de Janeiro PFBN PM Prudente de Morais Archive, IHGB, Rio de Janeiro Quintino Bocayuva Archive, CPDOC, FGV, Rio de Janeiro QB Raul Soares Archive, CPDOC, FGV, Rio de Janeiro RS Washington Luís Pereira de Sousa Papers, Arquivo Nacional, Rio de WL Janeiro

Archives AP CRB EP

Periodicals Almanak Laemmert. Rio de Janeiro, 1888-1895, 1900, 1905 Brasil Ferro-Carril. Rio de Janeiro, 1913, 1920, 1923, 1924 Brazilian Business. Rio de Janeiro, American Chamber of Commerce, 1921-1923 Brazilian Engineering and Mining Review. Rio de Janeiro, 1905-1908 Brazilian Review. Rio de Janeiro, 1899-1914 (became Wileman's Brazilian Review) Brazil Quarterly. Rio de Janeiro, 1916 Bulletin. Washington, D.C., Pan American Union, 1889-1930 O Comércio. Ilheus, Bahia, 1918-1921

208

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Correio da Manhã, Rio de Janeiro, 1905, 1908-1913, 1916, 1919, 1920, 1926 Correio do Norte. Manaus, Amazonas, 1906, 1919, 1920 Correio Paulistano. São Paulo, 1899, 1905, 1906, 1912, 1919 (organ of Partido Republicano de São Paulo) A Defesa Nacional. Rio de Janeiro, 1913-1926 The Economist. London, 1888-1930 O Economista Brasileiro. Rio de Janeiro, 1907-1914 O Estado de Minas. Belo Horizonte, 1919-1921 O Estado de São Paulo. São Paulo, 1905, 1912, 1924. A Federação. Porto Alegre, Rio Grande do Sul, 1912, 1920,1924,1928 (organ of Partido Republicano de Rio Grande do Sal) Gazeta de Comércio e Finanças. Rio de Janeiro, 1895, 1896 Gazeta de Notícias. Rio de Janeiro, 1906, 1912-1914, 1920, 1922 Gil Blas. Rio de Janeiro, 1919-1923 (official journal of Ação Social Nacionalista) A Imprensa Itaocará. Itaocará, Rio de Janeiro, 1908, 1909 Indústria e Comércio. Rio de Janeiro, 1916-1924 O Jacobino. Rio de Janeiro, 1894-1897 O Jornal. Rio de Janeiro, 1925 Jornal de Notícias. Rio de Janeiro, 1890 Jornal do Brasil. Rio de Janeiro, 1912, 1920 Jornal do Commércio. Rio de Janeiro, 1894, 1895, 1899, 1905, 1912, 1913, 1918-1925, 1928 Jornal do Povo. Rio de Janeiro, 1901 A Luta. Porto Alegre, 1909 A Metralha. Rio de Janeiro, 1893 Monitor Mercantil. Rio de Janeiro, 1915, 1918, 1920, 1924, 1926, 1928, 1930 O Nativista. São Paulo, 1895, 1896 A Noite. Rio de Janeiro, 1931 A Pátria. Recife, 1909 A "43." Rio de Janeiro, 1918 ("a revista dos tenentes") Review of Brazil. São Paulo, 1927, 1928 Revista da Marinha Mercante. Rio de Janeiro, 1915, 1916, 1921, 1922 Revista de Comércio e Indústria. São Paulo, 1915-1921 (organ of Centro de Comércio e Indústrias de São Paulo) Revista do Clube Militar. Rio de Janeiro, 1927-1931 Rio News. Rio de Janeiro, 1891-1894 South American Handbook. London, 1889-1930 Tea and Coffee Trade Journal. New York, 1925-1927 Wileman's Brazilian Review. Rio de Janeiro, 1915-1930 For a complete listing of the over two hundred periodicals consulted, see Steven Topik, "Economic Nationalism and the State in an Underdeveloped Country: Brazil, 1889-1930" (Ph.D. diss., University of Texas at Austin, 1978), pp. 339-348. Brazilian Government Documents Câmara dos Deputados, Anais. Various years. Comissão Parlamentar de Inquérito. Informações, 1883. Rio de Janeiro: Imp.

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Nacional, 1883. Congresso Constituyente. Anais, 1890, 1891. Congresso. Diário oficial, 1914-1930. Documentos Parlamentares. Caixa de Conversão. 2 vols. Paris: Type. Ailland, Alves & Cia., 1914. Discursos parlamentares (Alexandre José Babosa Lima). Brasília: Câmara dos Deputados, 1963. Impostos interestaduais, 1900-1911. Paris: Typ. Ailland, Alves & Cia., 1914. Legislação social. 3 vols. Rio de Janeiro: Imp. Nacional, 1919-1922. Meio circulante, 1892-1893, 1914. Rio de Janeiro: Imp. Nacional, 1914, 1917. Mensagens presidenciais, 1891-1910. Rio de Janeiro. Typ. Progresso, 1912, and 1915-1918; Rio de Janeiro: Jornal do Commércio, 1921. Orçamento da viação. Rio de Janeiro: Jornal do Commércio, 1913. Política econômica: defesa da borracha (1906-1914). Rio de Janeiro: Jornal do Commércio, 1915. Política econômica: valorização do café. 2 vols. Rio de Janeiro: Jornal do Commércio, 1915. Contadoria Geral do Império. Balanço da receita e despesa do Império, 18841888. Rio de Janeiro: Imp. Nacional, 1887-1891. Resumo do orçamento da receita e despesa para o exercício de 1889. Rio de Janeiro: Imp. Nacional, 1888. Contadoria Geral da República. Balanço da receita e despesa da República dos Estados Unidos do Brasil, 1890-1895, 1900, 1905, 1910, 1914, 1923, 1925, 1930. Rio de Janeiro: Imp. Nacional, 1893-1931. Tabela explicativa do orçamento para o exercício de 1912. N.P., n.d. Departamento Nacional de Café. O café no segundo centenário de sua introdução no Brasil. Rio de Janeiro: Departamento Nacional de Café, 1934. Defesa do café no Brasil. 2 vols. Rio de Janeiro: Departamento Nacional de Café, 1935. Departamento Nacional de Estatística. Movimento bancário, 1927-1928, 19291930,1930-1931,1932. Rio de Janeiro: Departamento Nacional de Estatística, 1930-1935. Departamento Nacional de Indústria e Comércio. Sociedades mercantis autorizadas a funcionar no Brasil, 1806-1945. Rio de Janeiro: Imp. Nacional, 1947. Diretoria Geral de Estatística (DGE). Anuário estatístico, 1908-1912. 3 vols. Rio de Janeiro: Typ. da Estatística, 1916, 1917, 1927. Anuário estatístico, 1939-1940. Rio de Janeiro: Imp. Nacional, 1940. Anuário estatístico do Distrito Federal, 1923. Rio de Janeiro: Typ. da Estatística, 1923. Recenseamento, 1920. Rio de Janeiro: Typ. da Estatística, 1922-1929. Synopse do censo de 1920. Rio de Janeiro: Typ. da Estatística, 1926. Leis do Brasil, 1891-1930. Leis do governo provisional do Brasil. Rio de Janeiro: Imp. Nacional, 1891. Ministério da Agricultura, Indústria e Comércio. Economical Data about Brazil. Rio de Janeiro: Imp. Nacional, 1916.

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Relatório. Rio de Janeiro: Imp. Nacional, 1920. What Brazil Buys and Sells. Rio de Janeiro: Imp. Nacional, 1918. Ministério da Fazenda. Contos do exercíciofinanceirode 1925 e relatório da Contadoria da República. Rio de Janeiro: Imp. Nacional, 1926. Dados biográficos dos ministros. Rio de Janeiro, 1962. Economical Data about Brazil, 1919-1928. Rio de Janeiro: Imp. Nacional, 1929. Exposição de motivos sobre a situaçãofinanceirae idéias de reforma. Rio de Janeiro: Imp. Nacional, 1891. Ministros da fazenda, 1822-1972. Rio de Janeiro: n.p., 1972. Relatório. Rio de Janeiro: Imp. Nacional, 1891-1930. Tabela explicativa do orçamento da despesa de 1920. Rio de Janeiro: Imp. Nacional, 1920. Diretoria de Estatística Comercial. Comércio exterior do Brazil, 19191923, 1930. Rio de Janeiro: Typ. da Estatística Comercial, 1920, and Departamento Nacional de Estatística, 1933. Ministério da Justiça. Relatório. Rio de Janeiro: Imp. Nacional, 1892,1893,1897, 1898, 1909-1911. Ministério da Viação e Obras Públicas. Dados biográficos dos ministros, 18611961. Rio de Janeiro: Serviço de Documentação do Ministério da Viação e Obras Públicas, 1961. Portos do Brasil, 1822-1922. Rio de Janeiro: Ed. "O Norte," 1922. Relatório. Rio de Janeiro: Imp. Nacional, 1897, 1901,1905, 1917, 1920, 1923, 1925, 1927. Inspetoria Federal das Estradas do Brasil. Estatística das estradas deferro do Brasil, 1898, 1900, 1903, 1907, 1910, 1915, 1920, 1925, 1929-1930. Rio de Janeiro: Imp. Nacional, 1898, 1900, 1903, 1907, 1909, 1913, 1915, 1920, 1924, 1925, 1926, 1929-1930. Repartição Geral dos Telégrafos. Relatório. Rio de Janeiro: Imp. Nacional, 1919-1922, 1925. Ministério de Negócios do Império. Relatório. Rio de Janeiro: Imp. Nacional, 1888. Presidente. Mensagem dirigida ao Congresso Nacional. Rio de Janeiro: Imp. Nacional, 1890, 1911-1914, 1919-1930. Supremo Tribunal Federal. A questão do Banco Hypotecário do Brasil com a união federal. Rio de Janeiro: Leite Ribeiro & Maurillo, 1919. U.S. Government Documents Congress. Congressional Record. 62d Cong., 1st sess., 1911-1912. Congressional Record of the Fifty-first Congress, 1889-1890. Vol. 21. Historical Statistics of the United States, 1789-1945. Washington, D.C.: GPO, 1949. Industrial Commission Reports. Vol. 1: Trusts: Preliminary Report. 56th Cong., 1st Sess., 1889-1900. H. Docs. 93, no. 476. The Statistical History of the United States from Colonial Times to the Present. Stamford, Conn.: Fairfield Publishers, 1969. Department of Commerce. United States Investments in Latin American Economies. Washington, D.C.: GPO, 1955.

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Federal Trade Commission. Report on Trade and Tariffs in Brazil Uruguay, Argentina, Chile, Bolivia, and Peru. Washington, D.C.: GPO, 1916. Report on the Supply of Electrical Equipment and Competitive Conditions. Washington, D.C.: GPO, 1928. Published Sources, Dissertations, Papers Abranches, João Moura Dunshee de. Governos e congressos da república. 2 vols. Rio de Janeiro: M. Abranches, 1918. Abranches, Sérgio. "Empresa estatal e capitalismo: uma análise comparada." Paper delivered at 27th meeting of Sociedade Brasileira para o Progresso Científico, July 1976. Aguiar, Pinto de. Rui e a economia brasileira. Rio de Janeiro: Fundação Casa Rui Barbosa, 1973. Alavi, Hamza. "The State in Post-Colonial Societies: Pakistan and Bangla Desh." New Left Review 76 (1972): 59-82. Amin, Samir. Le Développment inégal: essai sur les formations sociales du capitalisme périphérique. Paris: Editions de Minut, 1973. Araripe, Tristão de Alencar. Tasso Fragoso: um pouco de história do nosso exército. Rio de Janeiro: Biblioteca do Exército, 1960. Associação Comercial de Amazonas. Relatório. Manaus, 1901, 1902. Associação Comercial de São Paulo. Revista. 1920, 1921. João Pedro da Veiga Filho. Relatório. 1895. Associação Comercial do Maranhão. Revista. São Luís, 1908-1910. Associação Comercial do Rio de Janeiro. Commissão de Revisão da tarifa aduaneira. Rio de Janeiro: Typ. Jornal do Commércio, 1903. Associação de Comércio da Bahia. Representação dirigida ao congresso federal contra o convênio de Taubaté. Bahia, 1906. Avellar, Hélio de Alcântara. História administrativa e económica do Brasil. 2d ed. Rio de Janeiro: FENAME, 1976. Azevedo, Fernando de. Um trem corre para o oeste. São Paulo: Edições Melhoramentos, 1950. Azevedo, Manoel Antônio Duarte de. Considerações sobre o crédito real. Rio de Janeiro: Typ. Leuzinger, 1892. Baer, Werner. The Development of the Brazilian Steel Industry. Nashville, Tenn.: Vanderbilt University Press, 1969. A industrialização e o desenvolvimentoeconômicodo Brasil. Rio de Janeiro: Fundação Getúlio Vargas, 1975. Industrialization and Economic Development in Brazil. Homewood, 111.: Richard Irwin, 1965. Baer, Werner, and Anníbal Villela. "Alguns comentários sobre as origens e consequências de substituição de importações no Brasil de Albert Fishlow." Estudos Económicos 3 (1973): 129-134. Baer, Werner; Isaac Kerstenetsky; and Anníbal Villela. "The Changing Role of the State in the Brazilian Economy." World Development, no. 1 (November 1973): 23-34. Bak, Joan. "Cartels, Cooperatives, and Corporations: Getúlio Vargas in Rio Grande do Sul on the Eve of Brazil's 1930 Revolution. Hispanic American Historical

212 Selected Bibliography Review (HAHR) 63, no. 2 (May 1983): 255-276. "Some Antecedents of Corporatism: State Economic Intervention and Rural Organization in Brazil." Ph.D. diss., Yale University, 1977. Baklanoff, Eric. "Factores externos no desenvolvimento econômico do ponto neurálgico do Brasil: O Centro-Sul, 1880-1930." Revista Brasileira de Economia 21 (1967): 35-49. Bakota, Carlos. "Crisis and the Middle Classes: The Ascendancy of Brazilian Nationalism, 1914-1922." Ph.D. diss., University of California at Los Angeles, 1973. Balleiro, Aliomar. Um estadista no Ministério da Fazenda. Rio de Janeiro: Casa Rui Barbosa, 1952. Banco de la Nación. Memoria y balance general del ejercicio, 1925. Buenos Aires: Talleres Gráficos de la Compañía General de Fósforos, 1925. Banco do Brasil. Relatório, 1889-1894, 1905-1930. Rio de Janeiro. Banco do Estado de São Paulo. Relatório, 1936. São Paulo: Typ. J. Pallottini, 1937. Bandeira, Moniz; Clovis Melo; and Α. Τ. Andrade. O ano vermelho, a revolução russa e seus reflexos no Brasil. Rio de Janeiro: Civilização Brasileira, 1967. Presença dos Estados Unidos no Brasil (dois séculos de história). Rio de Janeiro: Civilização Brasileira, 1967. Β aran, Paul, and Paul Sweezy. Monopoly Capital: An Essay on the American Economic and Social Order. New York: Monthly Review Press, 1966. Barbosa, Rui. Banco Hypotecário do Brasil. Rio de Janeiro: Typ. Leuzinger, 1914. Campanha presidencial, 1919. Bahia: Liv. Catilina de R. dos Santos, 1919. Finanças e política da República. Rio de Janeiro: Comp. Impressora, 1892. Barman, Roderick, and Jean Barman. "The Role of the Law Graduate in the Political Elite of Imperial Brazil." Journal of Interamerican Studies and World Affairs 18 (1976): 432-449. Barran, J. P., and B. Nahum. Agricultura, crédito y transporte bajo Batlle (19051914). Montevideo: Ed de la Banda Oriental, 1978. Barros, Eudes. A Associação Comercial no Império e na República. Rio de Janeiro: Gráfica Olímpica, 1975. Barros, Paulo de Moraes. Política do café, ano de 1929. Rio de Janeiro: Imp. Nacional, 1929. Basbaum, Leôncio. Urna vida em seis tempos (memórias). São Paulo: Alfa-Omega, 1976. Bastos, Humberto. O pensamento industrial no Brasil. São Paulo: Liv Martins, 1952. Rui, ministro da independência económica do Brasil. São Paulo: Ed. Martins, 1951. Benévolo, Ademar. Introdução à história ferroviária do Brasil: estudo social, político e histórico. Recife: Ed. Folha da Manhã, 1953. Bett, Virgil M. Central Banking in Mexico: Monetary Policies and Financial Crisis, 1864-1940. Ann Arbor: University of Michigan Press, 1957. Bidwell, R. L. Currency Conversion Tables: A Hundred Years of Change. London: Rex Collings, 1970. Bilac, Olavo. A defesa nacional. Rio de Janeiro: Liga de Defesa Nacional, 1917.

Selected Bibliography 213 Boehrer, George. Da monarquia à República. Rio de Janeiro: Ministério da Educação e Cultura, 1954. Braga, Cincinato. Brasil novo. 2 vols. Rio de Janeiro: Imp. Nacional, 1931. Brandão, Octávio. Combates e batalhas. São Paulo: Alfa-Omega, 1978. Brasil, Tomaz Pompeo de Sousa. O Ceará no centenário da independência do Brasil. 2 vols. Fortaleza: Typ. Minerva, 1926. British Chamber of Commerce for São Paulo and Southern Brazil. E. Lloyd Rolfe. Personalidades no Brasil. São Paulo: São Paulo Editora, 1932. Report on Brazil's Trade and Industry in 1918 with Special Reference to the State of São Paulo. São Paulo: British Chamber of Commerce for São Paulo and Southern Brazil, 1919. Yearbook 1930. São Paulo, 1931. Buescu, Mircea. Brasil disparidade de renda no passado. Rio de Janeiro: APEC, 1979. Bukharin, Nikolai. Imperialism and the World Economy. 1929. Reprint. New York: Monthly Review Press, 1973. Bulhões, Augusto. Ministros da fazenda do Brasil, 1808-1954. Rio de Janeiro: Imp. Nacional, 1955. Leopoldo de Bulhões: um financista de principios, 1856-1928. Rio de Janeiro: Ed Financeiros, São Paulo, n.d. Bulhões, Leopoldo. Osfinancistasdo Brasil. Rio de Janeiro: Jornal do Comércio, 1914. Burns, E. Bradford. History of Brazil. 2d ed. New York: Columbia University Press, 1980. Nationalism in Brazil: A Historic Survey. New York: Praeger, 1968. The Unwritten Alliance: Rio Branco and Brazilian-American Relations. New York: Columbia University Press, 1966. Calmon, Miguel. Produção e comércio da borracha. Rio de Janeiro: Jornal do Commércio, 1906. Calmon, Pedro. História do Ministério da Justiça. 2 vols. Rio de Janeiro: Imp. Nacional, 1972. Calógeras, João Pandiá. As minas do Brasil. Rio de Janeiro: Imp. Nacional, 1904. A política monetária do Brasil. São Paulo: Ed. Nacional, 1960. Problemas de governo. São Paulo: Emp. Gráfica Rossetti, 1928. Câmara, João Lindolpho. Projecto do códego aduaneiro. Rio de Janeiro: Imp. Nacional, 1929. Cámara Syndical dos Corretores de Fundos Públicos da Capital Federal. Relatório. Rio de Janeiro: Imp. Nacional, 1895, 1910, 1920, 1929-1930. Cameron, Rondo. Banking in the Early Stages of Industrialization. New York: Oxford University Press, 1967. Campanhole, Adriano, and Hilton Lobo Campanhole. Todas as constituições do Brasil. São Paulo: Atlas, 1971. Campos Sales, Manoel Ferraz de. Da propaganda à presidência. São Paulo: Typ. "A Editora," 1908. Cano, Wilson. Raizes da concentração industrial em São Paulo. São Paulo: DIFEL, 1977.

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Cardoso, Fernando Henrique, and Enzo Faletto. Dependency and Development in Latin America. Translated by Marjory Mattingly Urquidi. Berkeley & Los Angeles: University of California Press, 1979. Corone, Edgard. O Centro Industrial do Brasil. Rio de Janeiro: Editora Cátedra, 1978. A República Velha (evolução política). São Paulo: DIFEL, 1974. A República Velha (instituições e classes sociais). São Paulo: DIFEL, 1970. Carreira, Liberato de Castro. História financeira e orçamentária do império no Brasil. 2 vols. 1890. Reprint Rio de Janeiro: Fundação Casa Rui Barbosa, 1980. Carvalho, José Murilo de. A construção da ordem, a elite política imperial. Rio de Janeiro: Ed. Campus, 1980. "A forças armadas na Primeira República: o poder desestabilizador." In História geral da civilização brasileira, vol. 9. Edited by Boris Fausto, pp. 181— 234. São Paulo: DIFEL, 1977. Carvalho, Lisa de Aquina. "Contribuição ao estudo das habitações populares: Rio de Janeiro, 1886-1906." M.A. thesis, Universidade Federal Fluminense, Niterói, R. J., 1980. Castro, Ana Célia. As empresas estrangeiras no Brasil, 1860-1913. Rio de Janeiro: Zahar, 1979. Cavalcânti, Amaro. Resenhafinanceirado Império. Rio de Janeiro: Imp. Nacional, 1893. Centro Comercial do Rio de Janeiro. Relatório, 1900, 1901. Centro de Comércio e Indústria do Rio de Janeiro. Relatório, 1915, 1918-1921, 1923. Centro Econômico de Rio Grande do Sul. Relatório, 1906, 1907. Centro Industrial do Brasil. Boletim. Rio de Janeiro: Typ. do Jornal do Commércio, 1905, 1907. O Brasil: suas riquezas naturais, suas indústrias. 2 vols. Rio de Janeiro: Imp. Μ. Orosco & Cia., 1907, 1908. A campanha contra os impostos interestadoães. Rio de Janeiro: Typ. Jornal do Commércio, 1929. Relatório. Rio de Janeiro: Typ. do Jornal do Commércio, 1912, 1915, 1918, 1922, 1925, 1928, 1931. Chantland, William Τ. "Valorization of Coffee." 63d Cong. 1st sess. Senate Documents 6535, doc. 36. Washington, D.C.: GPO, 1913. Chateaubriand, Assis. Terra deshumana: a vocação revolucionária do Presidente Arthur Bernardes. Rio de Janeiro: Oficinas de "O Jornal," 1926. Chilcote, Ronald Η., and Joel C. Edelstein. Latin America: The Struggle with Dependency and Beyond. New York: John Wiley & Sons, 1974. Clube de Engenharia. Relatório. Rio de Janeiro, 1905-1912. Coatsworth, John H. El impacto económico de los ferrocarriles en el Porfiriato: crescimiento y desarrollo. 2 vols. Mexico City: Secretaría de Educación Pública, 1976. "Railroads, Landholding and Agrarian Protest in the Early Profiriato." HAHR 54 (1974): 48-71.

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Comissão de Estudos Econômicos e Financeiros. A defesa do café. Rio de Janeiro: Jornal do Commércio, 1935. Congresso Brasileiro de Expansão Econômica. Congresso Brasileiro de Expansão Econômicareunido no Rio 17 de Julho a 25 de Agosto de 1905. Rio de Janeiro: Imp. Nacional, 1906. Contador, Cláudio, and Cláudio Haddad. "Produção real, moeda e preços: a experiência brasileira no período 1861-1970." Revista Brasileira de Estatística 36 (1975): 407-440. Correa Filho, Virgílio. Joaquim Murtinho. Rio de Janeiro: Imp. Nacional, 1951. Correia, Inocêncio Serzedelo. O problemaeconômicono Brasil. 1903. Reprint. Rio de Janeiro: Fundação Casa Rui Barbosa, 1980. Costa, Paulo de Andrade Martins. Introdução à memória histórica de E. F. Central. Rio de Janeiro: Typ. da Central, 1955. Cunha, Alvaro Bomilcar. A política no Brasil ou nacionalismo radical. Rio de Janeiro: Leite, Ribeiro & Maurillo, 1920. Cunha, Euclides de. Rebellion in the Backlands. Translated by Samuel Putnam. Chicago: University of Chicago Press, 1970. Cunha, Ranulpho Bocayuva. "Organização do trabalho livre e leis da proteção acidentes, seguros pensões." In Livro do centenário de Câmara dos Deputados (1826-1926), pp. 373-397. Rio de Janeiro: Empreza Brasil Editora, 1926. Dantas, Manuel P. de Souza. Correspondência do Conselheiro ManuelP. de Souza Dantas. Rio de Janeiro: Casa Rui Barbosa, 1962. Dean, Warren. "A industrialização durante a República Velha." In História geral da civilização brasileira, vol. 8. Edited by Boris Fausto, pp. 249-283. São Paulo: DIFEL, 1975. The Industrialization of São Paulo, 1880-1945. Latin American Monographs, no. 17 Austin: University of Texas Press, 1969. Rio Claro: A Brazilian Plantation System, 1820—1920. Stanford, Cal.: Stanford University Press, 1976. Rio Claro, um sistema brasileiro de grande lavoura, 1820-1920. Rio de Janeiro: Paz e Terra, 1977. Deane, Phylis, and W. A. Cole. British Economic Growth, 1688-1969. Cambridge: At the University Press, 1969. Debes, Célio. Campos Sales: perfil de um estadista. 2 vols. Rio de Janeiro: Liv. Francisco Alves, & MEC, 1978. Delfim Netto, Antônio. O problema do café. 1959. Reprint. Rio de Janeiro: Ed. Fundação Getúlio Vargas, 1979. Denis, Pierre. Le Brésil au xx siècle. Paris: A. Colin, 1909. Denslow, David. "As exportações e a origen do padrão de industrialização regional do Brasil." In Dimensões do desenvolvimento brasileiro, pp. 21-63. Edited by Werner Baer et al. Rio de Janeiro: Ed. Campus, 1978. Dias, Everardo. História das lutas sociais no Brasil. São Paulo: Edaglit, 1962. Diegues Júnior, Manuel. Imigração, urbanização, industrialização. Rio de Janeiro: Centro Brasileiro de Pesquisas Educacionais, 1964. População e açúcar no Nordeste do Brasil. Rio de Janeiro: Comissão Nacional de Alimentação, 1954. Diniz, Diana Maria de Faro Leal. "Rio Claro e o café: desenvolvimento, apogeu e

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Gomes, Angela Maria de Castro. Burguesia e trabalho. Rio de Janeiro: Ed. Campus, 1979. Gorender, Jacob. O escravismo colonial. São Paulo: Atica, 1978. Gordo, Adolfo Afonso da Silva. A expulsão de estrangeiros. São Paulo: Espíndola, 1913. Graham, Douglas H. "Migração estrangeira e a questão de oferta de mão de obra no crescimentoeconômicobrasilerio, 1880-1930." Estudos Econômicos 3 (1973): 7-64. Graham, Richard. Britain and the Onset ofModernization in Brazil, 1850-1914. Cambridge: At the University Press, 1968. "A British Industry in Brazil: Rio Flour Mills, 1886-1920." Business History 8 (1966): 13-38. "Government Expenditures and Political Change in Brazil, 1880-1899: Who Got What." Journal of Interamerican Studies and World Affairs 19 (1977): 339-368. "Landowners and the Overthrow of the Empire." Luso-Brazilian Review 7 (1970): 44-56. Great Britain. Department of Overseas Trade. Stanley G. Irving. Report on Economic Conditions in Brazil. London: Dept. of Overseas Trade, 1930. Diplomatic and Consular Reports. Misc. Series No. 617, H. C. Lowther. Railway Systems of Brazil. London: HMSO, 1904. Ernst Hambloch. Report on the Economic and Financial Conditions in Brazil. London: HMSO, 1923 Greenhill, Robert. "The Nitrate and Iodine Trades, 1880-1914." In Business Imperialism 1840-1930: An Inquiry Based on British Experience in Latin America. Edited by D. C. M. Platt, pp. 231-283. Oxford: Oxford University Press, 1977. Guanabara, Alcindo. A presidência Campos Sales. Rio de Janeiro: Laemmert, 1902. Hahner, June. Civilian-Military Relations in Brazil, 1889-1898. Columbia: University of South Carolina Press, 1969. "The Paulistas Rise to Power: A Civilian Group Ends Military Rule." HAHR 47 (1967): 149-166. Halperin Donghi, Tulio. Historia contemporánea de América Latina. Madrid: Alianza, 1970. Hamilton, Nora. The Limits of State Autonomy. Princeton, N.J.: Princeton University Press, 1982. Hanson, Simon. "The Farquhar Syndicate in South America." HAHR 17 (August 1937): 314-326. Hasenbalg, Carlos Α.; Clovis Brigagão; and Fernando José Leite Costa. O setor financeiro no Brasil: aspectos históricos. Rio de Janeiro: Instituto Universitário de Pesquisas do Rio de Janeiro, 1970. Hayes, Robert. The Brazilian World. St. Louis: Forum Press, 1982. Holloway, Thomas. Immigrants on the Land: Coffee and Society in São Paulo, 1886-1934. Chapel Hill: University of North Carolina Press, 1980. "Migration and Mobility: Immigrants as Laborers and Landowners in the Coffee Zone of São Paulo, Brazil, 1886-1934." Ph.D. dissertation, University

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Leff, Nathaniel. The Brazilian Capital Goods Industry, 1929-1964. Cambridge: Harvard University Press, 1968. Underdevelopment and Development in Brazil. 2 vols. London: George Allen & Unwin, 1982. Leme, Marisa Saenz. A ideologia dos industriais brasileiros, 1919-1945. Petrópolis: Vozes, 1978. Leoni, Arlindo A. Embargos n. 2,286: Henry Lowndes, Conde de Leopoldina, embargados: Banco do Brasil e a união federal. Rio de Janeiro: Typ. do Jornal do Commércio, 1918. Leroy-Beaulieu, Paul. Traité de la science desfinances.Paris: Guillaumin F. Alcan, 1906. Lessa, Francisco de Paula Mayrink. Vida e obra do Conselheiro Mayrink. Rio de Janeiro: Pongetti, 1975. Levi, Darrell Ε. Α família Prado. Translated by José Eduardo Mendonça. São Paulo: Cultura 70, 1977. Levine, Robert. Pernambuco in the Brazilian Federation, 1889-1937. Stanford, Cal.: Stanford University Press, 1978. Levy, Maria Bárbara. "O Encilhamento." In Economia brasileira: uma visão histórica. Edited by Paulo Neuhaus, pp. 191-255. Rio de Janeiro: Ed. Campus, 1980. História da bolsa de valores. Rio de Janeiro: IBMEC, 1979. Lewin, Linda. "Politics and Parentela in Paraíba: A Case Study of Oligarchy in Brazil's Old Republic." Ph.D. dissertation, Columbia University, 1977. Lewis, Cleona. America's Stake in International Investments. Washington, D.C.: Brookings Institution, 1938. Lewis, M. Colin. "British Railway Companies and the Argentine Government." In Business Imperialism. Edited by D. C. M. Platt. London: Oxford University Press, 1978. "Railways and Industrialization: Argentina and Brazil, 1870-1929." In Latin American Economic Imperialism and the State: The Political Economy of the External Connection from Independence to the Present. Edited by Christopher Abel and Colin M. Lewis, pp. 199-230. University of London Institute of Latin American Studies Monograph Series, no. 13. London: Athlone Press, 1985. Lloyd Brasileiro. Relatório. Rio de Janeiro: Jornal do Commércio and Typ. Martini & Araujo, 1916, 1917, 1919, 1921-1926, 1922-1924. Lobo, Eulália Maria Lahmeyer. História do Rio de Janeiro (Do capital comercial ao capital industrial e financeiro). 2 vols. Rio de Janeiro: IBMEC, 1978. Lobo, Hélio. Lloyd Brasileiro, uma lição que fica. Rio de Janeiro; 1954. Lockwood, William. "Foundations of Japanese Industrialism." In The Foundations of Economic Growth. Edited by Barry Supple, pp. 372-398. New York: Random House, 1963. London Times. Official Index, 1920-1926. London: Times Publishing Co., 192226. Lough, William H. Banking Opportunities in South America. Washington, D.C.: GPO, 1915. Love, Joseph. "Political Participation in Brazil, 1881-1969." Luso-Brazilian

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227

Taunay, Affonso de Escragnolle.Históriado café no Brasil. 15 vols. Rio de Janeiro: Depto. Nacional de Café, 1939-1943. Távora, Juarez. Uma vida e muitas lutas. Vol. 1. Rio de Janeiro: Liv. José Olympio, 1973. Telles, Mário Rolim. A defesa do café e a crise de 1929. São Paulo, 1931. Topik, Steven. "Economic Nationalism and the State in an Underdeveloped Country: Brazil, 1889-1930." PhD dissertation, University of Texas, Austin, 1978. "Informal Empire? The U.S.-Brazilian Trade Treaty of 1891." MA thesis, University of Texas, Austin, 1974. "Middle-Class Brazilian Nationalism, 1889-1930: From Radicalism to Reaction." Social Science Quarterly 59 (1978): 93-104. "State and Economy: Brazil under the Empire and the Republic." Office for Public Sector Studies, Technical Paper Series, no. 47. Austin, Tex.: Institute of Latin American Studies, 1985. Torres, Alberto. O problema nacional brasileiro. Rio de Janeiro: Imp. Nacional, 1914. Trimberger, Ellen Kay. "A Theory of Elite Revolutions." Studies in Comparative International Development 7, no. 3 (1972): 191-207. Ukers, William H. All About Coffee. New York: Tea and Coffee Trade Journal, 1935. Coffee Merchandising. New York: Tea and Coffee Trade Journal, 1924. Uricoechea, Fernando. "O estado brasileiro moderno: das máximas patrimoniais aos princípios burocráticos." Dados 15 (1977): 61-82. O minotauro imperial. São Paulo: DIFEL, 1978. Vaitsman, Maurício. O petróleo no Império e na República. Rio de Janeiro: Empreza Gráfica "O Cruzeiro," 1948. Valla, Victor V. A penetração norte-americana na economia brasileira, 18981928. Rio de Janeiro: Ao Livro Técnico, 1978. Veiga Filho, João Pedro da. Estudoeconômicoefinanceirosobre o estado de São Paulo. São Paulo: Typ. do Diário Oficial, 1896. Relatório apresentado à directoria da Associação Comercial de São Paulo. São Paulo: Typ. da Industrial de São Paulo, 1896. Véliz, Claudio. The Centralist Tradition of Latin America. Princeton, N.J.: Princeton University Press, 1980. Venâncio Filho, Alberto. A intervenção do estado no domínioeconômico.Rio de Janeiro: Fundação Getúlio Vargas, 1968. Versiani, Flávio. "Industrialização e economia de exportação: a experiência brasileira antes de 1914." Revista Brasileira de Economia 34 (1980): 3-40. Versiani, Flávio R., and Maria Tereza R. O. Versiani. "A industrialização brasileira antes de 1930: uma contribuição." In Formação económica do Brasil, a experiência da industrialização. Edited by Flávio Rabelo Versiani and José Roberto Mendonça de Barros, pp. 121-142. São Paulo: Ed. Saraiva, 1978. Viana, Víctor. O Banco do Brasil: sua formação, seu engrandecimento, sua missão nacional. Rio de Janeiro: Jornal do Commércio, 1926. Vianna, Luiz Werneck. Liberalismo e sindicato no Brasil. Rio de Janeiro: Paz e Terra, 1978.

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Selected Bibliography

Villar, Captain Frederico. A nacionalização da pesca e a regulamentação dos seus serviços. Rio de Janeiro: Typ. São Sebastião, 1924. Villares, Jorge Dumont. O café, sua produção e exportação. São Paulo: Instituto de Café do Estado de São Paulo, 1927. Villela, Anníbal, and Wilson Suzigan. A política do governo e crescimento da econômica brasileira, 1889-1945. Rio de Janeiro: IPEA/INPES, 1973. Walle, Paulo. Au pays de l'or noir. Paris: Ε. Guilmot, 1910. Wallerstein, Immanuel. "The Rise and Future Demise of the World Capitalist System: Concepts for Comparative Analysis." Comparative Studies in Society and History 16 (1974): 387-415. Weaver, Frederick Stirton. Class, State and Industrial Structure. Westport, Conn.: Greenwood Press, 1980. Weffort, Francisco. O populismo na política brasileira. São Paulo: Brasiliense, 1978. Weinstein, James. The Corporate Ideal in the Liberal State, 1900-1918. Boston: Beacon Press, 1968. Wholihan, John T. "An Analysis of the Development of Selected Utility Services of Brazil." PhD dissertation, American University, 1973. Wiarda, Howard J. "Corporatism in the Iberic-Latin World: Persistent Strains and Variations." The Review of Politics 36 (1974): 3-33. Wickizer, V. D. Coffee, Tea and Cocoa. Stanford, Cal.: Food Research Center, 1951. The World Coffee Economy with Special Reference to Control Schemes. Stanford Cal.: Food Research Center, 1943. Wileman, J. P. Brazilian Currency: The Study ofan Inconvertible Currency. 1896. Reprint. New York: Greenwood Press, 1969. , ed. The Brazilian Yearbook, 1908-1909. New York: G. Fairbanks, 1909. Wilkins, Mira. The Maturing of Multinational Business from 1914 to 1970. Cambridge: Harvard University Press, 1974. Wirth, John. Minas Gerais in the Brazilian Federation, 1889-1937. Stanford, Cal.: Stanford University Press, 1977. The Politics ofBrazilian Development. Stanford Cal.: Stanford University Press, 1970. "Tenentismo in the Brazilian Revolution of 1930." HAHR 44 (1969): 167-179. Witter, João Sebastião. "A primeira tentativa de organização partidária na República." PhD dissertation, Universidade de São Paulo, 1971. Wright, Thomas C. "Origins of the Politics of Inflation in Chile, 1888-1918." HAHR 53, no. 2 (May 1973): 239-259. Wright, Winthrop R. British-owned Railways in Argentina: Their Effect on the Growth of Economic Nationalism, 1854-1948. Latin American Monographs, no. 34. Austin: University of Texas Press, 1974. Wythe, George. La industria latino-americana. Mexico City: Fondo de Cultura Económica, 1947. Young, Jordan M. The Brazilian Revolution of 1930 and the Aftermath. New Brunswick, N.J.: Rutgers University Press, 1967.

Index

Ação Social Nacionalista, 148. See also Nationalism Agricultural diversification, 65-66,144. See also Cattle Agricultural protection, 144. See also Tariff, import Alavi, Hamza, 4 Almeida, Gabriel Osorio de, 173 ff. 25 Amazonas, 6, 70, 187n.49. See also Rubber Amin, Samir, 5 Amortization fund, 37. See also Currency issues: Gold standard; Milréis Anarchists, 10,159. See also Workers, industrial Arantes, Altino, 102 Arbuckle Company, 63, 72, 84 Argentina, 6, 12, 91 Armed forces, 25-26,31,147, See also Florianistas; Military officers Artisans, 130 Associação Comercial: da Bahia, 69; de São Paulo, 35,108,139 (see also Exporters; Merchants; Trade); de Santos, 78; do Rio de Janeiro, 47, 173n.25 Autonomy, provincial, 15; state, 1,2,3, 5,130,134,164. See also Federalism Baer, Werner, 3 Bahia, 12, 99, 125, 144. See also Northeast; Salvador Balance of payments, 37. See also Debt, foreign; Imports; Investment,

foreign Banco da República, 31, 34, 36; agreement of, with Treasury, 38; federal intervention into, 38; and industry, 132, 137; reorganization of, 38-39. See also Banco do Brasil; Encilhamento Banco de Crédito Real de Minas Gerais, 64, 73. See also Banks, mortgage; Minas Gerais Banco de Crédito Rural de São Paulo, 64, 79. See also Banks, mortgage; São Paulo State Banco de Custeio Rural, 73 Bando do Brasil: advantages of, for Treasury, 53, 56; and agricultural credit, 42, 50; as central bank, 39, 47, 53, 83; commercial role of, 53; concession in 1890, 31; corruption in, 53; directors of, 23-24; and elite, 53; and exchange rates, 42; and extension of discounts in São Paulo, 83; federal debt owed to, 47; increased government control of, 47; and industry, 132, 145; loan to banks, 50; loan to rubber industry, 45; loan to São Paulo, 50; loan to Treasury, 56; loss of right to issue currency, 49; performance of, as bank of issues, 49; public role of, 39, 44; as receiver of federal loans, 44; and regional concentration, 52; relationship of, to Caixa de Estabilização, 50; restrictions on, 39;

230 Index Banco do Brasil (continued) stock quotation of, 39; vales ouro, 200n.57; and valorization of coffee, 44, 75, 80, 83, 84, 87, 89. See also Banco da República; Banco Nacional; Banks; Banks, mortgage; Carteira de Redescontos Banco do Estado de São Paulo (BANESP), formerly Banco Hypotecário, 73,78; and coffee loans, 80, 84, 89, 91. See also Banks, mortgage; Permanent Defense of Coffee; São Paulo State Banco dos Estados Unidos do Brasil (BEUB), 31. See also Banco do Brasil Banco Nacional, 31, 132. See also Banco do Brasil Banco União, 132 Bankers, 57; foreign, 72. See also Financiers Banks: agricultural loans by, 29, 61; Brazilian private, 39,45,46,51; and crisis of 1901, 142; deposits in, compared with U.S., 52; and the elite, 53; growth in system of, 45,49, 51; foreign, 46, 51; industrial development, 157; industrial loans by, 52, 198n.l4; and reform of 1921, 4647; regional concentration of, 28, 46, 52; right of, to issue currency, 30, 34; smallness of system of, 28, 52; system of, compared with U.K. and U.S., 52. See also Aid-toindustry loan; Banks, morgage; Currency issues; Investors foreign Banks, mortgage: for coffee under the Empire, 60; federal, 1, 64,181n.60; nonfederal, 52; planned federal, 42, 47, 75; in São Paulo and Minas Gerais, 42; share of, Brazilianowned, 51. See also Banks; Banco do Estado de São Paulo; Credit, agricultural; Minas Gerais State; São Paulo State Barbosa, Rui, 24, 30-31, 61, 132-133 Barbosa Lima, Alexandre José, 24,134

Barros, Prudente de Morais, 35-36,66, 83, 106. See also São Paulo State: presidents from Belgium: investment by, 105; trade treaty of, with Brazil, 75 Belo Horizonte, 117, 152. See also Minas Gerais Bernardes, Arthur attempts by, to lease out Central Railroad, 97; financial program of, 48-49; and iron industry, 149; and labor, 11; opposition of, to Permanent Defense of Coffee, 7679; and railroads, 107 Blaine-Mendonça Treaty, 69,133,135. See also Treaties, Trade Bonapartism, 5. See also Autonomy, state Bonds, government, 28. See also Loans, aid-to-industry; Debt Bourgeoisie: Brazilian, 4, 6, 17; European, 6; industrial, 7, 130, 131. See also Bankers; Financiers; Industrialists; Merchants; Oligarchy, export; Planters, coffee Brás, Wenceslau: background of, 4445, 147; financial policy of, 44-45; and valorization of coffee, 74 Brazilian experience, compared with other Latin American countries, 166 Brazilian Traction Company, 101. See also Light Co. Brazilian Warrant Company, 84; and valorization of coffee, 76, 88 Bresser Pereira, Luis Carlos, 2 Budget, federal, 4, 23, 28, 36. See also Debt, federal internal; Duties, import; Revenues, federal; Spending, federal; Taxes, federal Bukharin, Nikolai, 5 Bulhões, Leopoldo de, 24, 66, 142, 180n.55 Bureaucracy, federal, 3, 5, 13, 162; composition of, 21-22; corruption in, 23; criticisms of, 21; in economy, 4; as employer of Brazilians on railroads, 123; financial policy of, 57; inefficiency of, 23; pensions

Index 231 from, 11; personalism in, 23; professionalism in, 23-24; size of, 8, 21; valorization of coffee by, 92; work benefits in, 11. See also Banco do Brasil; Corruption; Railroads; Workers Café con leite agreement, 17 Caixa: de Conversão, 41, 68, 74, 145; de Estabilização, 49-50, 80; de São Paulo, 91; económica, 28, 53. See also Banks; Exchange rate; Gold standard; Milréis Calógeras, João Pandiá, 108 Cameron, Rondo, criteria of, applied to Brazil's banks, 52 Campos, Bernardino de, 66 Campos Sales, Manoel Ferraz de: coffee policy of, 66; demage to personal assets of, 38; financial political support for, 36; "politics of governors" of, 16; and railroads, 95, 96 Candomblé, 12 Cano, Wilson, 3 Canudos, 12, 36 Capital: origins of, 52-53. See also Banks; Credit, agricultural; Financiers; Industrialists; Industry; Investment, foreign; Loans; Merchants; Planters, coffee Capitalism, state, 40, 56, 152 Capitalist relations, state encouragement of, 29. See also Liberalism Capitalists, commercial, 130. See also Bankers; Financiers; Mayrink, Francisco de Paula; Merchants Carteira de Redescontos, 46, 74. See also Banco do Brasil Cardoso de Mello, João Manuel, 3 Catholic church, 12 Cattle, 7, 65-66. See also Agricultural diversification Caustic soda, 150, 151. See also Industrialization; Loans, federal government Cavalcanti, Amaro, 24 Cement, 151-152. See also Loans,

federal government Census, industrial: of 1907, 145-146; of 1920, 146 Center-South, 7, 11, 15-16. See also Banco do Brasil; Federal District; Minas Gerais; Railroads; Rio de Janeiro State; São Paulo State Central bank, Paulista support for, 47. See also Banco do Brasil; Currency issues; Gold standard Central do Brasil Railroad: attempts to lease, 97; as commuter line 111; compared to Leopoldina 111; complaints about service of, 115; cost of coal for, 111, 120; degree of independence of, 109-110; directors of, 23, 109; employees on, 110, 111; expansion of, 99; federal efforts to link to other railroads, 99; as freight subsidizer, 120; funding for, 110; low rates charged by, 112,113,114; operating expenses of, 114; planned electrification of, 115; political support for, 98; profitability of, 109; purpose of, in São Paulo, 127; rolling stock of, 115; special services of, 111,112,113, 114; unprofitable routes of, 110, 111, 114; workers on, 97-98, 110, 111, 112. See also Railroads Centralist tradition, 2 Centralization, 17,161. See also Banks; Federal government; Federalism; Railroads; Regionalism Centro de Industrias de Madeira de Paraná, 101 Centro de Indústrias de São Paulo, 101 Centro do Comércio de Rio de Janeiro, 64 Centro Industrial do Brasil, 47, 139, 143, 173n.25 Civil war, 34, 36. See also Armed forces Clube Militar, 147. See also Armed forces Coal, 120-121 Coatsworth, John, 118

232

Index

Coffee: advertising campaign for, 65; agreement, second, 78; aid to, 74; biological nature of, 68; competitors, 68; contribution of, to national economy, 70, 90; debt, moratorium on, 83; during Empire, 60; exchange, 73, 85; exporters, Brazilian, 85-86; exporters, foreign, 61, 64, 71, 8586; exports, 80,90; frost damage to, in 1918, 86; indirect government aid to, 62; international demand for 68; labor system, 63; land, 88; markets, 85; New York market, 72, 80 (see also Sielcken, Herman); prices, 6263, 71, 73, 74, 80, 84, 86; processing, 10; production, 6, 59, 61, 62, 63, 68, 80, 86-87; production costs of, 63; profits, 86,88; and railroads, 107, 117, 118; reasons for success of, 59; regional concentration of, 63, 92; return to power of, in 1894, 35; roasters, foreign, 88; roasting factories, 64; share of, of world market, 68,86,89-90; speculation in, in New York, 80; surplus, 89; tariff protection for, 143; trees, 62, 73, 86, 89; warrantage system, 60; warehouse facilities, 79, 85. See also Banks, mortgage; Exports; Immigrants; Minas Gerais; Rio de Janeiro State; Sao Paulo State; Valorization, of coffee Colombia, coffee in, 83; railroads in, 196n.88 Colonialism, internal, 125 Colonies, agricultural, in São Paulo, 65. See also Immigrants; São Paulo State Colonization, 114,123. See also Colonies, agricultural; Immigrants Comissariado de Alimentação Pública, 153 Commerce, nationalization of, 199n.43. See also Jacobins Commercial associations. See Associação Comercial Comissários: 60, 84, 178n. 14. See also Coffee

Commission for Commercial Expansion, 73 Communist party, 11. See also Anarchists Conde de Figueiredo, 13 Conde de Leopoldina, 34 Congress: Agriculture and Justice, Committees, 151; House of Deputies, 16; Permanent Defense of Coffee, 76, 80; Railroad Committee, 96,108-109,110-111,114; Senate, 16; valorization of coffee, 69, 74. See also Federal government Congress for Commercial Expansion, 142 Constitution of 1891, 2, 4, 8, 10, 15, 152 Consumers, urban, 37, 102. See also Jacobins; Middle class Cooperative movement, 12. See also Sindicatos Coronelismo, 8, 10, 12. See also Café com leite agreement Corporations, 200n.62; multinational, 152. See also Investment, foreign Corporatism, 4, 153 Corruption, 8, 13, 31, 88, 174n.36, 177n. 14, 205n. 131. See also Banco do Brasil; Fonseca, Marshal Deodoro da Cost of Uving, 8, 32-33, 35, 138. See also Exchange rate; Milréis Cotton, 7, 65; textiles, 132, 134, 143, 146. See also Industry Credit, agricultural, 60,64, 79, 84. See also Banco do Brasil; Banks; Banks, mortgage; Coffee; Loans, federal government; Permanent Defense of Coffee; Valorization of coffee Curitiba, 117, 125 Currency issues, 36, 37, 44, 48. See also Banco do Brasil; Banks; Gold standard Dean, Warren, 3 Debt federal internal, 13, 20-21, 28, 49, 56; foreign, 6, 28, 35, 50, 51,

Index 233 165-166, 205n.9; mortgage, in São Paulo, 184n.18; peonage, 6 Defense, national, 25-26. See also National security, doctrine of Defesa Nacional, A, 147 Delfim Netto, Antonio, 3 Deodoro. See Fonseca, Marshal Deodoro da Dependency, 157-158, 165. See also Exports; Imperialism; Industry Development, 2 Disconto Gesellscharft, 71. See also Valorization, of coffee Dom Joao VI, 129 Dom Pedro II Railroad, 94. See also Central do Brasil Railroad Dumont plantation, 11. See also Coffee; Great Britain, investments Duties: customs, gold, 132-133, 140, 141; import, 8,90,140,165,173a23. See also Revenues; Tariff, import; Taxes, federal Economic conditions, 36, 40, 45, 46. See also Banks; Coffee; Debt; Exchange rate; Exports; Industry; Investment, foreign Economy, world, 165. See also Coffee; Exports; Investment, foreign; Rubber Electrical Bond and Share, 152 Electricity, 152. See also Brazilian Traction Company Elite: governing, 24; nonexporting, 12, 163-164; political, 25. See also Bourgeoisie; Oligarchy, export; Planters Empire, 2, 60. See also Banks; Coffee; Industry; Railroads Employment, 8. See also Bureaucracy, federal; Central do Brasil Railroad; Industry Encilhamento, 28-29, 34, 132, 135, 138. See also Barbosa, Rui; Fonseca, Marshal Deodora da; Banco da República Engineers Club, on state enterprise, 152

England. See Great Britain Epitácio. See Pessoa, Epitácio Espírito Santo, 12. See also CenterSouth Exchange rate, 28, 31, 41, 42, 45, 49, 90. See also Gold standard; Milréis Exports: decline in, 49; in economy, 6; growth of, 37; promoted by railroads, 115-116; share of national production, 7, 165; share of railroad traffic, 118. See also Coffee; Treaties, trade Exporters, 35, 62. See also Coffee Faoro, Raimundo, 4 Faria, Alberto de, 101 Faria, Gen. Caetano de, 147 Farmers, 11. See also Peasants Farms, 125. See also Coffee; Land; Sugar Farquhar, Percival: and Brazil Railroad, 100, 103-104; and Itabira Iron Co., 149; and Sorocabana, 71; and valorization of coffee, 72. See also Nationalism; Railroads: Brazil Railroad Federal District: and aid-to-industry loan, 137; banks in, 28, 52; as bureaucratic center, 15; and Central Railroad, 113, 127; economic growth of, 3; industries in, 131; industrial work force in, 143; markets in, 7,65; municipal council and labor in, 11; population of, 8; renovation of, 66; socialization of politicians in, 24; suburban transportation in, 115 Federal ethos, 24 Federal government bank deposits of, 28; and expropriation of railroads, 95; and seizure offinancialpower, 34; as stockholder in Lloyd Brasileiro and Sorocabana Railroad, 36; world position of, as owner of railroads, 93. See also Autonomy, state; Banco do Brasil; Banks; Coffee; Congress; Industry; Interventionism, state; Railroads; Valorization, of coffee

234

Index

Federalism, 4, 13, 15-16, 17. See also Centralization; Coronelismo; Minas Gerais; São Paulo State Federal Permanent Defense of Coffee, 77. See also Coffee; Permanent Defense of Coffee; São Paulo State; Valorization, of coffee Financial policy, 14, 40, 43, 57. See also Banks; Caixa: de Conversão; Caixa: de Estabilização; Currency issues; Gold standard; Loans, funding; Milréis; Ministers: of finance Financiers, 3, 7, 136; foreign, and valorization, 88. See also Bankers; Banks; Investors, foreign; Mayrink, Francisco de Paula First Republic, historiography of, 2 Fiscal policy, 135. See also Duties, customs; Revenues; Spending, federal; Tariff, import; Taxes Florianistas, 25-26. See also Armed forces; Jacobins; Peixoto, Marshal Floriano Floriano. See Peixoto, Marshal Floriano Flour mills, 134, 145 Fonseca, Marshal Deodoro da, 25; attempts of, to lease out Central Railroad, 97; and election fraud, 177n.14; and industry, 133-134 Fonseca, Marshal Hermes da, 43, 144 Ford Motor Co., 154 Foreign companies, Brazilians employed in, 174n.36 Foreigners, benefits to, from valorization, 88 Foundries, 134. See also Iron Frank, André Gunder, 3 Free trade, 4. See also Laissez faire; Liberalism Freire, Felisbello, 33, 135 France: coffee defense blocked by, 71, 92; investments by, in banks, 64-65, 72; investments by, in Brazil, 41; investments by, in industry, 154; investments by, in railroads, 107, 122; trade treaty of, with Brazil, 74.

See also Investment, foreign Frontier, Brazilian, 11, 17, 123 Furtado, Celso, 2, 3, 27, 35 Gaffree and Guinle, 152. See also Guinle, Guilherme Galbraith, John Kenneth, 5 General Electric Corp., 154 General Motors Corp., 154 Geological Service, 148, 150 Germany: bank authorization rescinded by, 181n.69; and confiscation of Brazilian coffee, 87; during World War I, 202n.88; industrial investment by, 154-155; ships of, confiscated, 74; war declared on, by Brazil, 74. See also Investment, foreign Gerschenkron, Alexander, 5, 93, 121 Gold standard, 30, 35,41,45,48-50, 83. See also Banco do Brasil; Exchange rate; Liberalism; Milréis Gouvéia, Delmiro, 205n.132 Graham, Richard, 3 Great Britain: banks, 37; bankers from, threaten Brazil, 36; bankers from, and valorization of coffee, 75; financial mission of, in 1923, 48; investments by, 41, 100, 122, 145, 154; investorsfrom,react to nationalization of railroads in 1901, 96. See also Banks, foreign; Debt, foreign; Investment, foreign Gross Domestic Product, 90, 153. See also Wealth Guinle, Guilherme, 13 Gunpowder factory, federal, 150. See also Industry Hamilton, Nora, 164 Hayes, Robert, 3 Holloway, Thomas, 3, 90 Hoover, Herbert, and valorization, 88 Hymer, Stephen, 128 Ideology, 1. See also Liberalism

Index 235 Immigrants: benefits to, from Permanent Defense of Coffee, 88; as coffee workers, 63, 84; communities of, 11, 12; federal subsidies to, 67, 91; investment by, in industry, 155; number of, 29, 61-62; as strike breakers, 10. See also Coffee; Workers, industrial Imperialism, 5, 35, 101 Importers, 131 Imports: composition of, 155; fall of, 37; price of, 141; share of, in railroad traffie, 118 Indigenous communities, 11. See also Tupi Industrialists, 5,12; against weak milréis, 33; background of, 130; and opposition to aid-to-industry loan, 136; and opposition to devaluation, 134; political power of, 163; and support of Central railroad, 98 Industrial center. See Centro Industrial do Brasil Industrialization, 3, 8; import-substitution, 157, 158. See also Industry Industrial output, 36; per capita, compared with other countries, 156 Industry: advantages of, 132,142-143; capital-goods, 146, 148, 155, 157; conditions in 1889, 131; as consumer of agricultural products, 139; development of, 155; electrial machine, 152; and Empire, 129-130; growth of, 146-147,155; growth of, in 1880s, 130; indirect state aid to, 153; lumber, 101; "natural," defined, 139; protected by inflation, 138; relationship of, to coffee, 90, 130, 142. See also Coal; Cement; Development; Industrialization, import-substitution; Iron Institute for the Permanent Defense of Coffee, 75, 77. See also Permanent Defense of Coffee; São Paulo State Instituto de Fomento e Economia Agrícola, 79 Instituto Mineiro de Defesa do Café, 79

Integration, national, 123 Interamerican Coffee Agreement, 91 Interventionism, state, 1, 3, 12, 78, 161, 205n.5; as attempt to institutionalize, 74; in coffee, 73, 93; in industry, 138; means of evaluating, 88. See also Banks; Coffee; Loans; Permanent Defense of Coffee; Revenues; Spending; Tariffs, import; Valorization, of coffee Investment, foreign, 6, 12; and balance of payments, 66; and Banco da República, 39; and the Brazil Railroad, 100,105; during World War I, 43; andfinancialpolicy, 57; growth of, 101, 145; in industry, 142, 145, 153-154, 157, 158; and railroads, 99-101, 122 Investors, foreign, 1, 5, 12, 13; and government programs, 43; and industry, 131; political power of, 3, 4, 26; and railroads, 93, 128; and support for Funding Loan, 37; and valorization of coffee, 92 Ipanema iron factory, 130, 148, 149, 202n.92. See also Iron Iron, 114, 121, 148-150 Jacobins, 32, 36, 134, 178n.25. See also Florianistas Jaguaribe, Hélio, 2, 110 "Jardim de Infância," 40 Joint stock companies, 29 Jornal do Commercio, 127-128, 148149 Katzman, Martin, 123 Kolko, Gabriel, 5 Labor, 84; International division of, 35; legislation, 10, 11. See also Coffee; Immigrants; Liberalism; Workers Lacerda, Maurício de, 110 Land, 29,59,88,115,117,183n.2. See also Coffee; Frontier, Brazilian Leff, Nathaniel, 3, 4 Lei dos similares, 133

236

Index

Levine, Robert, 25 Levy, Barbara, 3 Lewin, Linda, 175n.46 Liberalism: continued appeal of, after World War I, 45; and creation of Banco do Brasil, 39; doctrine of, economic, 2, 4, 10, 26, 31-32, 5657, 163; and Permanent Defense of Coffee, 78; and nationalization of railroads, 95-96; and valorization of coffee, 91. See also Federalism; Gold standard; Laissez faire Liga de Defesa Nacional, 148. See also Nationalism Light Co., 152. See also Brazilian Traction Co. Linkages, industrial, created by agriculture, 156-157 Lloyd Brasileiro shipping company, 23, 36. See also Shipping Loans, federal government, 31; aid-toindustry, 61, 135-137 (see also Banks; Industry); and banks, 38,44, 64; and Empire, 28; Funding (1898), 37, 41, 95; Funding (1914), 44,47; to industry, 147; to São Paulo, 74. See also Banks; Credit, agricultural; Debt, foreign; Industry; Permanent Defense of Coffee; São Paulo State; Valorization, of coffee Loans, foreign, 187n.51; and Permanent Defense of Coffee, 78, 80; political consequences of, 164-165; and railroads, 95; and valorization of coffee, 75-76. See also Debt, foreign Lobo, Eulalia, 3 Love, Joseph, 25, 161 Lucena, Baron of, 31 Luz, Nícia Vilela, 3 Machado, Irineu, 109 Machinery, 134; industrial, 156. See also Electricity; Industry, capitalgoods Manaus, 152 Maranhão, and railroads, 123 Markets: capital, state encouragement

of, 30; internal, 7, 40, 90,117, 128, 144 (see also Agricultural diversification); national, 13 (see also Railroads). See also Banks; Encilhamento Matarazzo, Francisco, 7, 13, 173n.24 Match factories, 134. See also Industry Maté tea, 6, 7 Mayrink, Francisco de Paula, 30, 34, 64, 173n.24. See also Banco da República; Barbosa, Rui; Encilhamento; Financiers Medeiros, Borges de, on protection for industry, 142 Mello, Adm. Custodio de, 25 Merchants, 7; on aid-to-industry loan, 136; Portuguese, political rule by, 137; on protectionism, 139, 140; and support of Funding Loan, 37. See also Comissários; Exporters; Immigrants; Importers Mexico, railroads, 94, 117, 118 Middle class, 7-8, 12, 158; and Floriano, 32, 33, 34; political power of, 163. See also Bureaucracy; Florianistas; Jacobins Military officers, 8, 32. See also Armed forces Militias, state, 25 Milréis, value of, 27, 36, 37, 50, 67, 140. See also Caixa: de Conversão; Caixa: de Estabilização; Currency issues; Exchange rate; Gold standard; Money supply Minas Gerais, 12; advantages to, from Central railroad, 98; agricultural credit in, 64; and banks, 52, 73; and coffee, 7, 63, 65; export oligarchy in, 6; and export tax, 66; and fear of São Paulo dominance, 77; and federal government, 162; income in, 15; and Permanent Defense of Coffee, 79; politiciansfrom,contrasted with São Paulo, 40; and railroads, 98, 107, 125. See also CenterSouth; Permanent Defense of Coffee; Valorization, of coffee

Index Mineral rights, 29, 150 Ministry of Agriculture, 144 Ministers: of finance, 24-25, 110; of justice, 24; of the navy, 24; of transportation and public works, 24, 110; of war, 24 Monarchists, 30, 31 Money supply, 34, 36, 37, 44, 48, 49, 178n.18. See also Banco do Brasil; Banks; Gold standard Monoculture, in export economy, 8990. See also Coffee; Exports Morais. See Barros, Prudente de Morais Murray, Martin, 5 Murtinho, Joaquim, 24, 38, 66, 139 Nascimento, Nicanor, 110 National Council of Commerce and Industry, 153 National Labor Council, 11 Nationalism, 31, 51, 152-153, 165; against the Brazil Railroad, 101; growth of, during World War I, 43, 101-102,103. See also Ação Social Nacionalista; Jacobins; Liga de Defesa Nacional Nationalizations, reasons for, 127-128. See also Banco do Brasil; Railroads National Security, doctrine of, 147. See also Defense, national Naval revolt, 34. See also Armed forces Nilo. See Peçanha, Nilo Nitrates, 186n.48 Normano, J. F., 8 Norris, Sen. George: opposes valorization, 72 North, 6-7. See also Amazonas; Manaus; Pará; Rubber Northeast, 7,123,128. See also Bahia; Maranhão; Pernambuco; Sugar Nortz and Co., on coffee, 86 Oiticica, José, on Encilhamento, 138 Oligarchy, export, 1, 2, 3, 4, 6-7, 12, 26. See also Bourgeoisie; Planters,

237

coffee; Minas Gerais; Ruling class; São Paulo State Ouro Preto, Viscount of: agricultural policy of, 61;financialprogram of, 28-29 Pará: export oligarchy of, 6; and rubber, 70. See also Rubber Paramilitary groups, 8. See also Coronelismo Paraíba Valley, 63. See also Minas Gerais; Rio de Janeiro State; São Paulo State Paraná, 12; and Brazil Railroad, 101. See also Curitiba Passos, Pereira, 66 Patrimonialism, 4, 162. See also Bureaucracy Patron-client relations, 8. See also Coronelismo Peasants, 11, 12, 163. See also Immigrants Peçanha, Nilo: on agricultural protection, 144; background of, 42; and encouragement of agricultural diversification, 65; financial program of, 42, 43; railroad policy of, 96, 112 Pena, Afonso: on aid-to-industry loan, 136; background of, 40, 143; financial program of, 41-42, 43; and protection for agriculture, 144; and railroad policy, 96,99; and valorization of coffee, 69 Peixoto, Marshal Floriano, 8, 25; financial program of, 34; and industry, 134-138 passim; political support of, 32, 34 Permanent Defense of Coffee, 47; criticisms of, 80; established, 7778;financingof, 79; profitability of, 87. See also Banco do Estado de São Paulo; Coffee; Minas Gerais; Rio de Janeiro State; São Paulo; Valorization Pernambuco, 99, 125, 132. See also Northeast

238

Index

Personalism, 10. See also Coronelismo; Patron-client relations Pessoa, Epitácio: and the Amazon, 186n.49; background of, 46; financial program of, 46-47; and iron industry, 149; and petroleum, 150; and valorization of coffee, 75, 87 Petroleum, 150-151 Pinheiro Machado, José Gomes, on industrial protection, 142 Plantations: size of, 11; social control on, 11. See also Coffee; Land; Sugar Planters, coffee: benefit from weak milréis, 35; benefits to,fromvalorization, 88, 90; and coffee policy, 92; disagreement of, with government, 83; andfinancialpolicy, 57; and help from federal railroads, 120; investment of, in industry, 130-131; and opposition to Funding Loan, 37; political power of, 2, 60, 70-71, 162, 205n.4; support of Permanent Defense of Coffee, 83. See also Bourgeoisie; Coffee; Minas Gerais; Oligarchy, export; Rio de Janeiro State; São Paulo State Police, 11 Political parties: national, 17; Partido Democrático of São Paulo, 80; Partido Republicano Paulista, 83 (see also São Paulo) "Politics of governors," 16-17,37. See also Coronelismo; Federalism; Presidency Population growth, Brazil, 21 Populism, 5 Porto Alegre, 152. See also Rio Grande do Sul State Ports, 1 Positivism, 4 Prado, Antonio, 173n.24 Prado, Paulo, 76 Prado, Caio Júnior, 3 Presidency, 17; campaigns for, 8; elections for, 16. See also Politics, of governors; Voting Prestes, Júlio, 83

Price controls, 153 Private sector, studies of, 3 Profit rate, 13. See also Banks; Coffee; Industry; Railroads Protectionism, 92 Provisional government, 29, 31-32 Prudente. See Barros, Prudente de Morais Railroads: Araraquara, 117, 122; attacks on, 192n.42; Brazil Northeastern, 122; Brazil Railroad, 100101, 103-104, 105, 193n.44 (see also Farquhar, Percival; Investment, foreign); Central do Brasil (see Central do Brasil Railroad); capital, total, 121; cars, 121; in coffeeproducing areas, 84; construction of, 96, 107, 122; crisis in, 102; effect of, on concentration of land, 115, 116; and the Empire, 94; exports carried by, 118; export promotion by, 115,117; federal concessions of, 95, 105, 107; federal freight subsidies to, 120; federal guarantees to, suspended, 102; federally investment in, per state, 125; federal by leased, 96; federal ownership of, 93, 105, 107; federally owned, efficiency of, 114Ι 15; federally owned, employees on, 110; federal purchase of Brazilian rolling stock, 121; federal supervision of, 194n.63; foreign investment in, 99-101; freight carried on, in São Paulo, 118, 196n.95; freight rates for, 66,84,102,195n.82; government regulations of, 96; Goyaz, 108,109; Great Western, 96, 97, 100; and interior populations, 117; Juiz da Fora to Piaui, 99; Leopoldina, 95, 95, 100, 101, 110, 114; MadeiraMamoré, 105, 123 (see also Amazonas; Farquhar, Percival); locomotives belonging to, 121; Mogyana, 105; monopoly zones of, under Empire, 94; Muzambinho, 98; national integration of, 117-118; nationalization of, 93, 121; Noroeste,

Index 239 101, 108, 117, 127; objectives for building, 118,120; Oeste de Minas, 94,108,109; Paracatú, 107; Paulista, 105; Porto Alegre and Novo Hamburgo, 122; trafilc of, in international commerce, compared with Mexico, 118; private, criticisms of, 99; and private capital, 93; profit guarantees to, under Empire, 94, 95; profits of, 95, 108-109; public administration of, 109; Rede Cearense, 108; Rio Grande do Sul, 105, 107; Sabará, 99; São Paulo, 97, 102, 11; São Luiz-Teresinha, 108; São Paulo Northern, 106, 109 (see also Railroads: Araraquara); share of freight and passengers on public, 103; share of, owned by federal and state governments, 93; public ownership of, 103, 105; public share of total system of, 127; public spending for, 195n.87; redistributive nature of federal policy toward, 125; São Paulo and Rio, 98; Sapucahy, 98; Sorocabana, 36, 71, 95, 105, 106, 109, 114, 117, 194n.68; standardization of rail of, 96; social responsibility of, 96; state, concessions, 105; state, efficiency of, 114-115; state, employment on, 110, 111; states' investments in, 115; and stimulation of industry, 120-121; subcontractors of, compared with Argentina, 197n.102; Sul Mineira, 107, 109, 114, 193n.60; system compared with other countries, 117118; workers on, 191n.20 Regionalism, 13, 16. See also Banks; Center-South; Federalism; North; Northeast; Railroads Republic, political system of, 8 Republicans, 2,17,30. See also Republican Revolution; Rio Grande do Sul State; São Paulo State Republican Revolution, 2, 4, 13, 30, 131, 132 Revenues, federal, 16, 20. See also

Duties; Tariffs Revolution of 1930, 205n.l Rio de Janeiro City. see Federal District Rio de Janeiro State, 12; advantages to, from Central railroad, 98; and agricultural diversification, 65; coffee exports from, 7; shortage of credit to, 61; and Permanent Defense of Coffee, 7 Rio de Janeiro stock market, 3, 28, 29. See also Banks; Encilhamento Rio Grande do Sul State, 12; cooperative movement in, 144; Republican party in, 110; and railroads, 107. See also Porto Alegre Rivers, federal jurisdiction over, 152 Rodrigues Alves, Francisco de Paula: and aid-to-industry, 135-136; coffee policy of, 66-67; as Floriano's minister of finance, 33; opposition of, to Caixa de Conversão, 41; railroad policy of, 96, 102 Rostow, Walt W., 120 Rothschilds: interest of, in Central Railroad, 97; loan by, to São Paulo for coffee, 72; opposition of, to Treaty of Taubaté, 69; response of, to Campos Sales, 36. See also Debt, foreign; Financiers; Investors, foreign Rowe, J. W. F., 59 Rubber aviadores, 6 (see also Exporters; Merchants); exports, 6-7, 70; federal aid to, 69-70; forests, 11 Ruling class, 110. See also Bankers; Bourgeoisie; Elite, nonexporting; Exporters; Financiers; Industrialists; Merchants; Oligarchy, export; Planters Saes, Flávio Azevedo Marques de, 114 Salvador, 152. See also Bahia Santa Catarina, 12 Santos, 106 São Paulo City, 8, 117, 125 São Paulo State: agricultural loans to, 60, 61, 64; banks in, 51, 52; coffee production in, 86; domestic agriculture of, 89; and establishment of

240

Index

São Paulo State (continued) Banco de Custeio Rural, 73; federal loan to, 44, 125, 128, 162; foreign debt of, 35; industries in, 131, 132; land owned by, in West, 63; and Permanent Defense of Coffee, 7980, 92, 188n.73; planters in, 67; planters and merchantsfrom,request federal loan, 50; political elite of, 25; presidentsfrom,35,40; railroads in, 106-107, 115, 125, 195n.84; Republican party in, 38; revenue earned by, 15; as stockholder in Banco do Estado de São Paulo, 78; as stockholder in Banco Hypotecário, 73; tax on exports of, 66; tax on coffee trees in, 65; tax structure of, 91; valorization in, 87, 91. See also Center-South; Coffee; Federalism; Permanent Defense of Coffee; Planters, coffee; Regionalism; Valorization, of coffee Schwartzman, Simon, 4 Secret police, 11 Serzedelo Correia, Inocêncio, 174n.25; as economic authority, 24; as minister of finance, 33; on protection for industry, 139-140; on tariffs, 142 Shipping, 1 Sielcken, Herman, 71, 72, 88. See also Valorization, of coffee Silva, Hélio, 131 Sindicatos, 10. See also Cooperative movement Slavery: abolition of, 15, 28, 61; effect of, on industry, 129 Soares, Raúl, 107. See also Minas Gerais Social Structure, 5-12 passim Sociedade Nacional de Agricultura, 47, 62 Sodré, Lauro, 36. See also Jacobins Sodré, Nelson Werneck, 131 South, 7. See also Paraná; Regionalism; Rio Grande do Sul; Santa Catarina Souza, Washington Luís Pereira de: background of, 49; and central bank, 47; ends the Republic, 11; financial

reform of, 49; and foreign investment, 154; and labor, 11; and Permanent Defense of Coffee, 50, 80, 83-84 Sovereignty, national, 1. See also Defense, national Spending, federal, 20, 34. See also Federal government; Loans Staple products, 7 State, oligarchic, 25. See also Oligarchy, export; Planters, coffee States: revenues of, 16, 105; and right to tax, 34; uneven exports by, 6. See also names of specific states and region Steel mills, 150. See also Iron Stein, Stanley, 3, 142 Strike, São Paulo, 10. See also Workers, industrial Sugar: government aid to, 69; growing areas, 11; mills, 133; production, 7; refiners, 69 Tariff: import, 1, 200n.64; attempt to lower, 153; compared to other countries, 144-145; duty reduction in, 200n.58; and protection, 142, 143, 144. See also Free trade; Laissez faire; Revenues Taxes: export, 15,65,66,133 (see also Minas Gerais; Rio de Janeiro State; São Paulo State); import, on new Coffee land in São Paulo, 65; revenue, from valorization of coffee, 88. See also Duties; Revenues; Tariff, import Textile industry. See Cotton Taubaté, Treaty of, 67-68,69. See also Valorization, of coffee Trade, international, 6. See also Coffee; Exports; Imports; Treaties, trade Treasury, federal, 34, 53, 91, 95, 140. See also Banks; Budget; Currency issues; Debt; Loans; Milréis; Revenues; Spending Treaties, trade: Brazil-Belgium, 75; Brazil-France, 74; Brazil-U.S., 69, 133, 135 Trimberger, Ellen Kay, 5

Index Tupi, 117. See also Indigenous communities United Fruit Company, 128 United States: branch factories, 154; coffee roasters, 88; imperialism, 35; importers, 83; investment by, in industry, 153; investment by, in railroads 102-103, 122, 193n.44; Justice Department and valorization, 72; and loan for valorization, 92; Progressives, 101, 192n.36; state's role in, 5; trade treaty with Brazil, 69, 133, 135. See also Farquhar, Percival; Imperialism; Investment, foreign; Nationalism; Railroads: Brazil Railroad United States Steel Company, 151 Urbanization, 7-8. See also Bahia; Belo Horizonte; Curitiba; Federal District; São Paulo Uruguay, 94, 152 Utilities, public, municipally owned, 22-23. See also Brazilian Traction Co.; Electricity; Ports Vales ouro, Banco do Brasil, 42. See also Banco do Brasil Valorization, of coffee, 3, 73-77; distribution of benefits from, 88; federal aid to, 72, 91; funding of, 91; initiated by São Paulo, 71; loan stipulations for; 72; and milréis value, 88, 90; perceived reasons for success of, 68; prices, 86; profitabili-

241

ty of, 87; stocks of, confiscated in Germany, 73. See also Banco do Estado de São Paulo; Coffee; Institute for the Defense of Coffee; Permanent Defense of Coffee; São Paulo; Taubaté Treaty Vargas, Getúlio, 3, 20, 84 Vassouras, 125 Véliz, Claudio, 2 Venancio Filho, Alberto, 3 Vidal, Sampaio, 48 Villela, Anníbal, and Wilson Suzigan, 3, 131 Vinhaes, Augusto, 137, 199n.25 Voting: requirements, 8; number of people, 8 Wallerstein, Immanuel, 4, 165 Wealth: distribution of, 1; per capita, compared with U.S., 183n.94. See also Gross domestic product Weinstein, James, 5 Wille, T.: 88. See also Valorization, of coffee Wirth, John, 25 World War I: and finances, 42-45; impact of, on coffee exports, 73; and industry, 146-149; and nationalism, 101-102 Workers: child, 10; demographic breakdown of, 174n.31; federal, 22; industrial, 22-23,136,143,155,158; political power of, 163; size, 10-12; women, 10,11. See also Bureaucracy; Immigrants; Labor; Railroads