The Power and the Money: The Mexican Financial System, 1876-1932

Published by EH.NET (September 2003)

Noel Maurer, The Power and the Money: The Mexican Financial System, 1876-1932. Palo Alto, CA: Stanford University Press, 2002. xiv + 250 pp. $60 (cloth), ISBN: 0-8047-4285-5.

Reviewed for EH.NET by Enrique C?rdenas, Centro de Investigaci?n y Docencia Econ?micas, M?xico.

Noel Maurer has written a very interesting, provocative and thorough history of the banking system of Mexico during the 1876-1932 period. His work is interesting because he provides numerous insights, which enlighten our understanding of these institutions during their beginning years. He masters the historiography available using a political economy approach and makes a solid contribution to the historiography. His work provides a coherent history of the banking system, along with the history of some of the most important bankers and financiers, which complements well the work of other financial historians, such as Carlos Marichal and Leonor Ludlow, among others. However, Maurer departs from these scholars by using a different analytical framework. In this book, Maurer analyzes the predatory nature of the Mexican state through most of the nineteenth century, which reached its climax during the revolution of 1910-1920, when the banking sector practically collapsed. Nevertheless, the author shows that this behavior through the Porfiriato and during the post-revolutionary period was not necessarily irrational, from the government’s point of view, in spite of the inefficiencies that it created and given the stringent financial circumstances of the economy. An example of this is his discussion of whether Banco Nacional de Mexico behaved as a central bank or not, in spite of the privileges that it received from the government, including the right to issue paper money and become the government’s financial agent in charge of collecting taxes and performing other public functions.

That is why the book is also provocative. The author incorporates a theoretical framework, which helps explain apparent contradictions, which have usually led to incorrect conclusions. For instance, Maurer shows that in various instances the behavior of the banks (and that of the government as well) was quite rational and effective not only for themselves but for the economy as a whole, given the circumstances. For example, although the banks carried out inside-lending as they used inside information to grant credit to companies related to their directorates, such action avoided the obstacles imposed by the lack of public economic information on the firms and thus prevented bad loans in an economy with capital scarcity. The author also constructs a theoretical model, which explains the behavior and relationships of different agents within a rent-seeking environment. For instance, that occurred when the government granted a quasi-monopoly status to one private bank, with all kinds of privileges and therefore questionable from the public policy point of view, but which created a more stable financial market at a time when macroeconomic instability had been rampant for over half a century. It also occurred when the government had to practically kidnap itself in the early 1920’s in order to convince the banking community that it would not repeat again the abuses committed against it earlier on during the revolution. That is to say, Maurer shows that the government needed to behave as it did for very practical reasons, rather than the common view that the Mexican government at the time began to “betray” the revolution.

Finally, the book is a thorough history of the most important banks and events that characterized the Porfirian economy, the collapse of the revolution and its immediate aftermath, which provides for a clear vision of the history of the banking system as a whole. Naturally, his analysis cannot incorporate a detailed history of all the banks in operation at the time, but he covers the most relevant. His sources are solid and his arguments and facts well documented. Consequently, the book will be a required reference for students of Mexican history, political science and economics alike.

Enrique C?rdenas is co-editor of An Economic History of Twentieth-Century Latin America (three volumes, New York: Palgrave, 2000).