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Inglorious Revolution: Political Institutions, Sovereign Debt, and Financial Underdevelopment in Imperial Brazil

Author(s):Summerhill, William R.
Reviewer(s):Hanley, Anne

Published by EH.Net (June 2016)

William R. Summerhill, Inglorious Revolution: Political Institutions, Sovereign Debt, and Financial Underdevelopment in Imperial Brazil.  New Haven: Yale University Press, 2015. xiii + 342 pp. $85 (hardcover), ISBN: 978-0-300-13927-3.

Reviewed for EH.Net by Anne Hanley, Department of History, Northern Illinois University.

William Summerhill (Department of History, UCLA) presents us with a puzzle.  How was it that Brazil managed to gain the trust of international and domestic capital markets by establishing its creditworthiness in the nineteenth century yet failed to engender growth-inducing financial market development at home?  Aren’t the two supposed to go hand in hand?  According to Douglass North and Barry Weingast, they should.  Britain’s Glorious Revolution provides the example of a constitutional reform that separated the sovereign from control over public finance, handing it to an elected parliament responsive to the body politic.  This was the key to creditworthiness.  Political institutions that safeguarded the property rights of state creditors were also responsive to the demands of entrepreneurs at home, leading to financial deepening that created the conditions for robust economic growth and development.  One political revolution, two virtuous outcomes.  Yet in Brazil, the same constitutional reform that established the creditworthiness of the state did not promote financial deepening.  Summerhill’s book studies Brazil’s success in one endeavor and failure in the other to explore a lost opportunity.  If only the legislators who repeatedly borrowed and consistently serviced debt had also acted to promote instead of stifle the domestic private financial sector, Brazil may have parlayed its excellent creditworthiness into modern, sustained economic growth.  Yet this assumes that being a credible borrower naturally leads to broad-based financial development.  The Brazilian case shows that it ain’t necessarily so.  Summerhill offers a series of carefully crafted chapters resting on an array of richly constructed original data sets to demonstrate precisely why.  Early chapters focus on the nature, timing, cost, and track record of borrowing abroad and at home to establish Brazil’s surprisingly vibrant creditworthiness in spite of challenges from many disruptions and conflicts from regional revolts to international war.  Later chapters turn to domestic financial markets — the Rio de Janeiro stock exchange and commercial banks — to identify how and why these were stymied.

Summerhill weaves a sophisticated analysis of the Brazilian experience across the two parts of the book.  Brazil successfully committed to borrow without default for sixty years, a highly unusual feat for Latin American countries who had a propensity to default in the aftermath of independence, and was rewarded with regular access to the capital markets and downward trending costs of capital.  To take just one example of Summerhill’s carefully layered analysis, he delves into Brazil’s declining costs of capital to test what the proximate causes were and how they differed for foreign and national creditors.  Where others have argued that Brazil’s improved terms came from always making its payments, Summerhill’s tests show that shifts in risk premia came from reassessments of the likelihood of default.  The market responded not to past performance, the so-called “reputational effect,” but to the implications of disruptions for future repayment, a finding that is interesting while one is reading about the conflicts of the 1830s to 1860s, but downright chillingly prescient by the end of the book.  Moreover, his rich price data series reveal that the risks keeping domestic creditors up at night were entirely different from those that occupied the concerns of foreign lenders.  In a bit of historical fortune that the two rarely coincided, Brazil always had access to capital on one side of the Atlantic or the other.  Because of this access, Summerhill argues, it was able to fight and win wars, strengthen the central state, invest in infrastructure, and extend its authority over a continent-sized country.  Its borrowing in foreign and national markets reinforced its good behavior: what was good for external debt service (low inflation) was also good for domestic creditors (no fear that debts would be inflated away).  Chapter 4, a wonderful investigation of domestic borrowing, leaves us with a picture of a sophisticated market and savvy government officials.

Yet the political elites that succeeded so well in building up the state elected to closely control and stifle domestic financial market development.  The Council of State, an advisory body to the Emperor comprised of members of parliament, had ultimate control over approving corporate charters.  This turned out to be a clear conflict of interest:  by limiting the number of charters, the parliament limited the options available to the investing public and diverted their savings into domestic credit instruments when the government needed money.  This skewed incentive that promoted the nation-state at the cost of private sector development was reinforced by the close ties between statesmen and entrepreneurs who received the coveted charters.  As a result, banks were few and profitable.  The Brazilian economy was woefully underserved, while the political-financial cronies got rich. What would the British think of that?!  If nothing else, Summerhill’s tale of two markets is a compelling illustration that Britain’s experience was exceptional, not the standard.

This is an excellent book built on a solid foundation of data carefully examined, tested and explored so it seems petty to want to know more, but a series of unanswered questions nag the reader:  what were the financial theories and models available to Brazil’s statesmen as they designed their constitution that gave fiscal power to elected legislators?  Their experience with the Portuguese crown was enough to make them want to separate the sovereign from the purse, but how did they decide what this new form should take?  And what was their inspiration for maintaining tight control over the distribution of corporate charters?  This question is important, because one wonders whether the Brazilian elites knew of a virtuous path that could have benefited the nation yet actively chose the course of self-gain, or if they were responding to a unique set of constraints that gave incentive to development-stunting policy choices.  That is, was cronyism an initial input or an unintended outcome?  In the end, it didn’t matter.  A political coup in 1889 put an end to Brazil’s creditworthy status and turned it into the serial defaulter it is now known to be.  If there ever was an example of the weakness of the reputational effect argument, this was it, loud and clear.

Anne Hanley is associate professor of Latin American history at Northern Illinois University.  She is author of Native Capital: Financial Institutions and Economic Development in São Paulo, Brazil 1850-1920 and is writing a book on municipal finance and the provision of public services in Brazil.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2016). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century

The Public Good and the Brazilian State: Municipal Finance and Public Services in São Paulo, 1822-1930

Author(s):Hanley, Anne G.
Reviewer(s):Cribelli, Teresa

Published by EH.Net (December 2018)

Anne G. Hanley, The Public Good and the Brazilian State: Municipal Finance and Public Services in São Paulo, 1822-1930. Chicago: University of Chicago Press, 2018. xv + 290 pp. $60 (cloth), ISBN: 978-022-65-3507-4.

Reviewed for EH.Net by Teresa Cribelli, Department of History, University of Alabama.

Anne Hanley’s most recent work, The Public Good and the Brazilian State: Municipal Finance and Public Services in São Paulo, 1822-1933, examines the ways that centralized government funding — or the chronic shortage thereof — shaped the establishment of public services in seven municipalities (counties) in the state of São Paulo spanning from 1822 (the year that the Empire of Brazil gained its independence) to the end of the First Republic in 1930. Municipalities were charged with providing a range of public services, including the canalization of potable water, the construction of jails, churches, and other government buildings, transportation infrastructure such as bridges and macadamized roads, public health and public education. Meticulously researched, Hanley (Professor of History at Northern Illinois University) draws from more than a centuries’ worth of fiscal data at the municipal and provincial level, including “municipal ordinances, mayoral reports, citizen complaints and requests, municipal council correspondence with provincial and state legislatures, and financial reports” (p. 17).

Hanley finds that during the imperial period, the shortage of financing for public services was rooted in two factors: underfunding from the centralized government in the capital of Rio de Janeiro combined with provincial oversight over the minutest of public works expenditures; and regressive tax regimes that limited the ability of municipalities to raise funds locally to remedy shortages. By the end of the imperial period, just 5 percent of all national revenue was channeled to municipal public services. This number increased to 14 percent during the Old Republic (1889 to 1930), though still fell far short in providing the monies needed to fully fund basic services for municipal communities (p. 99). The heart of Hanley’s argument is that roadblocks to the generation and allocation of revenue for public services led to the deep income inequalities embedded in contemporary Brazil, home to one of the world’s sharpest divisions between the wealthy and the poor. She lays out her argument in seven chapters and a conclusion, including 4 figures and 32 tables that provide detailed data on the fiscal expenditures for the municipalities of Amparo, Araraquara, Campinas, Franca, Riberão Preto, Rio Claro, and São Carlos.

Based on these data, Hanley challenges a traditional historiography that argues that bloated patronage systems and corruption stilted the development of public services in nineteenth-century Brazil. While these were certainly on-going issues that affected government services, Hanley finds that it was top down control from Rio and the inability of local municipal councils to procure sufficient funding from the provincial level that prohibited the expansion of public services. Her sources reveal a sometimes decades-long frustration with the inability or unwillingness of the provincial legislature to channel resources into municipal projects. Funding revenues were further stymied by municipal dependence on local taxes and fees that “came primarily from daily economic and social interactions,” such as fines, taxes on rentals and professional licenses, and tolls (p. 102). While this was not always a strictly regressive tax structure that put the burden of raising public revenue on the least affluent members of society, it posed the dilemma of the chicken or the egg: “the fiscal structure of the Brazilian state isolated hinterland municipalities that needed stimulus for their commerce to thrive, and needed their commerce to thrive in order to generate revenue to pay for essential public services” (p. 65).

Despite the decentralization of oversight for public services and the ability to secure municipal loans with the establishment of the Old Republic in 1889, little changed. Public services remained underfunded and municipalities struggled to service their communities, especially as new technologies such as lighting and telephones, and new public health considerations including yellow fever outbreaks required additional municipal support.

In these examples, Hanley’s analysis goes beyond what may appear on the surface to be dry financial data. The Public Good vividly describes the progression of Brazilian modernization on the local level through the complaints and requests of local officials in official reports. Immediately following independence, municipal concerns focused on local issues such as preventing residents from watering horses in public fountains. By century’s end, municipal responsibilities included more complex projects, including the management of epidemics that required the construction of hospitals and the hiring of medical staff. Railroads hastened urban growth and facilitated trade, but they also spread disease more quickly and efficiently; modernization presented unexpected challenges that resulted in new expenses for municipalities.

Among the many rich insights of The Public Good, a few small questions remain. Hanley argues convincingly that these seven municipalities can be considered representative of the nation as a whole. São Paulo emerged after independence as an impoverished and underdeveloped hinterland that by the twentieth century developed into Brazil’s industrial and financial center and its wealthiest state. These municipalities therefore represent the extremes of poverty and wealth in nineteenth and early twentieth-century Brazil. Nonetheless, this reader would be curious to see how less affluent communities in even more remote regions addressed revenue shortfalls; did their strategies for procuring provincial support differ from São Paulo? Were certain regions favored with funding from Rio more than others? Hanley mentions the impact of the 1890s recession, World War I and the market crash of 1929 on local economies. It would be interesting to know more about the availability of funding in boom times. For example what were the spending priorities of the national government overall? Did events like the Paraguayan War (1865 to 1870) also factor into the availability of revenue at the national and local level?

In closing, The Public Good is a strong and significant addition to recent scholarship that bridges the division between data-driven economic history and social history, including William Summerhill’s Inglorious Revolution: Political Institutions, Sovereign Debt, and Financial Underdevelopment in Imperial Brazil (New Haven: Yale University Press, 2015) and Zephyr Frank’s Dutra’s World: Wealth and Family in Nineteenth-Century Brazil (Albuquerque: University of New Mexico Press, 2004). Hanley deftly weaves together a century’s worth of fiscal data into a carefully-crafted narrative that demonstrates how the construction of gutters and the distribution of vaccines — the ho-hum matter of everyday life — profoundly shaped the Brazilian experience in the nineteenth and early twentieth centuries and set the stage for today’s sharp wealth inequality. The Public Good is a significant contribution to scholarship on nineteenth-century Brazil, and fills a lacuna in our understanding of how modernization (and the financing that facilitated it) progressed on the local level. Beyond Brazil, Hanley’s work presents a model for researching the relationship between funding policies and public service development. Like the municipal councils who oversaw street lamp installation and electrification projects in their nineteenth-century communities, may this important research light the way for further scholarship on finance, local governance, and urbanization.

Teresa Cribelli is the author of Industrial Forests and Mechanical Marvels: Modernization in Nineteenth-Century Brazil (Cambridge University Press, 2016). She is currently co-editing a volume on Brazilian periodicals, Press, Power, and Culture in Imperial Brazil, 1822-1889, with Celso Castilho and Hendrik Kraay. Her present research follows two lines of inquiry: the role of readers’ letters in nineteenth-century Brazilian newspapers; and a comparison of narratives of progress and frontier expansion in nineteenth-century Brazil and the U.S.

Copyright (c) 2018 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2018). All EH.Net reviews are archived at

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century
20th Century: Pre WWII