Fecha de recepción:
22 de enero de 2024
Fecha de aceptación:
11 de junio de 2024
Disponible en línea:
31 de diciembre de 2024
Vol. 11 N.° 2
Julio - Diciembre del 2024
pp. 1- 27
H I S T O R I A E C O N Ó M I C A , E M P R E S A R I A L Y D E L P E N S A M I E N T O
TIEMPO & ECONOMÍA
Sugerencia de citación: Cascavita-
Mora, J. D. (2024). The Financial Market
Immaturity in Hispanic America, from the
Independence to the Liberal Reforms.
tiempo&economia, 11(2), 1-27.
https://doi.org/10.21789/24222704.2148
DOI:
https://doi.org/10.21789/
24222704.2148
The Financial Market
Immaturity in Hispanic
America, from the
Independence to the Liberal
Reforms
El mercado financiero inmaduro en
América Latina, desde la independencia
hasta las Reformas Liberales
Juan David Cascavita-Mora
Historiador y MSc Economic History
Museo Nacional de Colombia, Colombia
jdcmora@gmail.com
ABSTRACT
Hispanic American economic history has puzzled scholars due to its
particularities. The region is known for its abundance of natural resources
and land, but since its independence, it has not been able to transfer those
endowments into sustainable modern economic growth. Some researchers
affirm that “we are still far away to understand the causes of the slow
growth of Latin America”. This essay is a literature review, which assesses
the debates around the question of why Hispanic America did not have a
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financial revolution after its independence? It also provides a nuanced
explanation of the immaturity of the Hispanic American financial markets,
the persistence of the Censo Eclesiastico, a type of loan/mortgage widely
used as a source of credit during the colonial era, which was only prohibited
in the mid-nineteenth century. This type of loans had some unique
characteristics, like rent-seeking and close interpersonal relationships
between providers and takers within the capital market of the region at that
time. Those characteristics could explain the lack of interest of the elites in
the establishment of modern financial institutions. The persistence of the
censos caused the immaturity of the capital market in Hispanic America.
However, more studies are needed it to assert this with confidence and this
essay is a call for further studies on the matter.
Keywords: economic history; Latin America; debt; financial Markets
JEL Codes: I38, J16, J24, O21
RESUMEN
La historia económica hispanoamericana ha llamado la atención de los
académicos por sus particularidades. La región es conocida por su
abundancia de recursos naturales, pero desde la independencia no ha
podido transformar esta riqueza en crecimiento económico moderno.
Algunos investigadores afirman que “aún estamos muy lejos de entender
las causas para el lento crecimiento de América Latina”. Este articulo revisa
y evalúa la literatura y los debates acerca de la pregunta ¿Por qué
Hispanoamérica no tuvo una Revolución Financiera después de la
independencia? Además, propone una explicación novedosa sobre las
razones de la inmadurez del mercado financiero en Hispanoamérica, la
persistencia del Censo Eclesiástico, un tipo de préstamo ampliamente
utilizado como fuente de crédito durante la dominación colonial que solo
fue prohibido a mediados del siglo XIX. Este tipo de préstamos tenían
características muy particulares, como las monopolísticas y cerradas
relaciones interpersonales entre los prestamistas y prestatarios en el
mercado de capital de la región de la época, lo cual puede explicar la falta
de interés de las elites en el establecimiento de instituciones financieras. La
inmadurez del mercado financiero en Hispanoamérica es un síntoma de la
persistencia de los censos. Sin embargo, más estudios son necesarios para
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sostener esta afirmación, por lo que este artículo es un llamado para
investigaciones en el tema.
Palabras clave: historia económica, América Latina, deuda,
mercados financieros
Códigos JEL: I38; J16; J24; O21
Introduction
Latin American economic history has caught scholar’s attention due
to its specificities. The region is known for its abundant natural resources
and land, but since its independence, it has not been able to transfer those
endowments into sustainable modern economic growth. The multiple
explanations to this phenomenon include factors such as endowments, the
institutions settled during colonial times, the political instability, and the
lack of state capacity in the region (Acemoglu et al., 2001; Sokoloff & Zolt,
2006; Cardenas, 2010). But as Marichal & Llopis affirmed (2009), “we are
still far away from understanding the causes of the slow growth of Latin
America” (p. 11).
Hispanic American economic history is characterized by an
overabundance of comparative analyses. Most of the studies on the
economic development of the region are comparisons with its Northern
neighbors. Hence, Hispanic America’s development measurements yield a
staggering difference across the New World’s countries, especially when
compared to the United States, a country that outperformed industrial
leaders during the nineteenth century (Broadberry, 1998; Wright, 1990) and
which, from that moment onwards, has been the pulling ahead economy of
the world. Under that perspective, comparing the north and the south of
the American continent only magnifies the already impressive performance
of the United States.
Nonetheless, comparisons are suitable to identify how different
regions of the world reached their economic development. It also enables
us to reflect on the fact that the case of the industrialized countries—the
United Kingdom, France, Canada, Germany—are not the rule but the
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exemption. At this point, the following question arises: why do some
countries pull ahead, and others lag? The comparative studies illustrate and
underpin the divergences between regions. Przeworski & Curvale (2008)
stated that at the beginning of the eighteenth century, the differences in
the GDP per capita between North America and Spanish America was
unremarkable, even more, Cuba outperformed the GDP per capita of the
North American colonies. The Maddison Project's (2020) estimates show
that from the late 1700s until now, both regions’ GDPs have diverged, and
the gap has only grown, raising the following question: why did the
economic performance of Hispanic America backslash with that of the
United States?
As stated before, many scholars have posited multiple answers to this
puzzle. The answers are keen to explain the current economic performance
with the New World colonial past. In this framework, the debate follows the
institutions set by the colonial country—whether the United Kingdom or
Spain—and factors such as endowments, population, and natural resources
in the continent (Robinson, 2008). Yet, one moment seems to have had a
profound impact on the economic path of the new republics: the
Independence Revolutionary Wars. Some scholars have even introduced
the idea that delaying independence wars had profound costs that affected
the later development of the countries (Przeworski & Curvale, 2008, pp.
108-109). After its independence, the United States of America underwent
an incomparable rise in its economic performance, fueled by a financial
revolution led by Alexander Hamilton, which “modernized” the financial
market of the new nation (Rousseau & Sylla, 2003; Sylla, 2002). Whereas
the Latin American countries went through the “lost decades” (Bates et al.,
2007), a time of unremarkable economic performance that lasted until the
first wave of globalization, when the region entered the international
markets. So, why Hispanic America did not have a financial revolution after
its independence?
As a literature review, this essay assessed the debates that have led
the answers to this question from a financial history perspective. It also
attempted to provide a nuanced scope into a legacy institution from
colonial times, the Censo Eclesiastico, which was a type of loan/mortgage
widely used in the Spanish empire as a source of credit during the colonial
era that was used until the mid-nineteenth century. The goal of this essay
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is to widen our understanding of the reasons behind the development—or
lack of it—of the financial institutions after Hispanic America independence
wars.
Our hypothesis for this review is that the persistence after the
independence of censos and other private sources of loan explains the
immaturity of the banking and financial industry in Latin America. This idea
complements that of the political institutions (Haber, 2012), and the
absence of an effective state as the main reasons behind the low economic
performance of the new republics. The persistence of this institution
hampered the ability of the nations of having a financial revolution in the
region that might have allowed them to keep up and catch up with the
leading economies.
To prove such hypothesis, first, on section I, I conducted a literature
review on the financial innovations that provided economic growth in the
leading economies on the global north, following the Richard Sylla and
Peter Rousseau’s perspective (2003), which characterized the modern
financial system with the example of the Dutch Republic. Then, section II
analyses the literature related to the performance and development of
Latin American economies since their independence under the proposition
of Sylla and Rousseau. Section III examines the censos and its incidence in
the credit market before and after the independence until its demise during
the liberal revolutions of the mid-century. Finally, the conclusion
establishes a research agenda around the Hispanic America financial
history that will help to further clarify the reasons behind the causes of Latin
America’s slow growth.
The Financial Revolution
The history of the so-called financial revolution is the formation of
what is known in the literature as a “good” financial system. The financial
revolution entailed the devising of financial innovations that were the
response to the different challenges that traders and entrepreneurs faced
during their economic activities (Atack, 2010). The first notable commercial
revolution took place in northern Italian cities of Venice, Genoa, and
Florence in the late Middle Ages. To fulfil the necessity of creating and
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maintain a constant exchange of goods, innovative financial devices like the
bill of exchange, double accounting, and insurance to nautical ventures
emerged. Those were mainly banking alterations that secured the constant
trade between the West and East (Abulafia, 1998). Although those cities-
states had a spur in economic growth due to the banking novelties, they did
not develop modern economic growth. In that sense, what kind of financial
nuances created a good financial system with its modern economic
growth?
Before answering that question, it is crucial to understand why a
financial revolution is desirable. According to Richard Sylla and Peter
Rousseau’s “Financial Systems, Economic Growth, and Globalisation”
(2003) article posits that the Dutch, English and American economic growth
was grounded on financial development. They suggest that trade and
industry flourish when a country has “good” financial institutions and a
“good” financial system. In a nutshell, their economic performance was
finance-led. Then, which are the traits of a good financial system? They
propose that a “good” financial system is an entanglement of factors that
acted intertwined. Those factors or conditions are: “(a) sound public
finances and public debt management; (b) stable monetary arrangements;
(c) a variety of banks, some with domestic and others with international
orientations, and perhaps some with both orientations; (d) a central bank
to stabilize domestic finances and manage international financial relations;
and (e) well-functioning securities markets” (Rousseau & Sylla, 2003, pp.
374-375). Thus, a financial revolution occurs when all those factors come
together at the same place and time. Nonetheless, each factor aside can
help to spur economic growth. But when they interact collectively, a
profound shift in the economic performance can be achieved. Alongside
those factors, they also identify other elements—such as central
institutions, political representation, rule of law, property rights—with a
degree of importance, but they do not address them in-depth.
Still, the prerequisites provide a framework to analyze the
development of the financial revolutions, keeping into account that the
debate around the evolution of what is called a “good” financial system is
deeply correlated with the emergence of the modern state and the state
capacity (Tilly, 1990; Dincecco, 2015; Johnson & Koyama, 2017). The case
of the Dutch Republic is exemplar as it reunited all the elements at the time
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of the emergence of capitalism. From that moment on, the financial
revolutions started to spread. The Dutch case also sheds light on the way
the prerequisites act intertwined.
The Dutch financial revolution is directly linked to the Dutch
Revolution, which confronted the northern region of the Low Countries
with the rule of Phillip II. The cities of the north territory needed revenue to
wage war against the Habsburg rule. To obtain the essential income they
resorted to issue annuities backed by the republic’s different sources of
revenue (Neal, 2015). The main characteristic of those annuities was their
lifespan, which could be either redeemable annuities or lifetime annuities.
The former were redeemable on-demand and had low-interest rates, which
could also be heritable and tradable (on a secondary market of securities).
The latter ran until the holder died, had higher interest rates, and could not
be traded or inherited (Fritschy, 2017). The redeemable annuity was highly
desirable due to the “easy redemption of the notes at the offices of the local
tax receivers, (…) ease of transfer, as they were payable to bearer” (Neal,
2015, p. 60).
Yet, the annuities were not attractive to the public as they were
unsecured. They had to entail a stable and assured source of revenue to
meet the debt maturity. The government credibility was at stake. The
challenge was in the capacity of the government to yield taxes (Gelderblom
& Jonker, 2011). In the case of the Dutch Republic, the income consisted of
different sources like loans, direct taxes, and indirect taxes that shifted their
importance during the seventeenth and eighteenth centuries. Indirect
taxes (excise, custom, grain milling taxes) started as the major source of
revenue with a share of 50% in 1600, but it lost ground to direct taxes (land,
wealth, houses) that grew from around 35% to a staggering 48% in 1720
(Fritschy, 2017, pp. 180-184). The share of loans is remarkable because at
some point accounted for 20% of revenue, as Gelderblom & Jonker
estimated, the debt issuance grew at the same rate as the revenue (2011,
12). So, a codependent equilibrium between the government, which kept
rolling the debt to meet the compromises, and the creditors, that continued
lending with the promise of payback, was created. The fragile balance was
achievable due to the growth of the Dutch economy, which in return
increased the States revenue. Albeit, what was driving the economic
growth?
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The answer to that question is the soaring commerce driven by the
different Dutch merchants, but mainly by the Dutch East India Company
(VOC in Dutch). The chartered company was created to consolidate the
existing individual ventures into just one, which also monopolized the Asian
trade. The corporation was established as a joint-stock company with
limited liability. Stockholders shared equity with the profits and by 1622
dividends were paid every two years. Its shares could be sold and bought in
a secondary market (Neal, 2015; Gelderblom & Jonker, 2014). The
secondary market, or securities market, grew in importance because the
VOC stock became a highly regarded collateral that opened the threshold
to loans and lowered interest rates (Neal, 2015, p. 62), increasing the
circulation of capital and expanding the trade.
Yet, the booming trade brought a concern related to the continuous
flow of foreign currency. A variety of coins minted at different metal ratios
began to circulate within the republic borders. The minted differences
caused uncertainty among debtors and creditors. To address this mistrust
the city of Amsterdam established the Bank of Amsterdam (Wisselbank).
This bank acted as an exchange bank that ensured the payments in a
reliable exchangeable coin, away from the debased unreliable foreign coin.
The Wisselbank became the de facto central bank that acted as an
intermediary to operate a large-value payment system, create a
corresponding type of money unredeemable for coins but equally valuable,
and manage the cost of money through market operations (Quinn &
Roberds, 2003).
The establishment of a central bank, a debt management system,
sound monetary arrangements, and securities market were some of the
innovations spread on the North Atlantic (Sylla, 2002; Diekmann &
Westerman, 2012). Its influence can be seen in the establishment of the
London Stock Market, the Bank of England, the first Bank of the United
States, the New York Stock Market, and the rising number of limited
liability companies, as in the rising number of commercial banks on those
places. The introduction of those financial institutions paved the way to the
economic growth and financial development of the North Atlantic.
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The Latin American Path Towards the Financial
Revolution
After the Hispanic American Independence Revolutionary Wars in the
1820s, there was a frenzy about the opening markets on the novel republics
of the New World. Precious commodities, such as silver, gold, sugar or
cacao, that were held and controlled in the territory by the inelastic and
restrictive infrastructure of the Iberian empires were now accessible.
Unfortunately, the economic growth of the Hispanic American republics
right after their independence was not as expected. Bates et al. (2007)
named this period as the “lost decades” and stated that the political
instability and its never-ending conflicts led to an economic stagnation that
deterred the inclusion of the countries in the global markets. This view was
expanded by Przeworski & Curvale (2008), who affirmed that the political
institutions were unable to solve the rising conflicts in the region. This
analysis was framed within the Neo-institutionalist paradigm by
frontrunners North (1990), Acemoglu et al. (2001), and Robinson (2008),
who posited the importance of the political-institutional framework that
created incentives towards innovation and economic performance.
According to them, the bequeathed institutions settled by the Spanish
colonizers did not promote economic growth and acted as a barrier to the
economic development of the region. Furthermore, those institutions are
still affecting the economic development of the region. In the same sense,
Sokoloff & Engerman (2002), Engerman & Sokoloff (2012) and Gelman
(2009) argued that it was not the Spanish rule, but the factor endowments
of the region which set the institutional path settled by the colonizers, thus,
setting the track towards inequality and low economic performance.
Because those endowments did not change after the independence, the
institutions endured.
In contrast, Prados de la Escosura (2009) is skeptical about the tag
“lost decades” and stated that the Hispanic American economic
performance after the independence was, with regional differences, fairly
decent in comparison with European periphery countries. It only lagged in
comparison with the core industrialized countries, their expectations, and
potential. This view can also be complemented with the Arroyo-Abad &
Zanden (2016) analysis about economic growth under the considered “bad”
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institutions. The authors say that the so-called “bad” institutions did not
impede economic growth in the viceroyalties of New Spain (Mexico) and
Peru. The mining sector in those economies was dynamic, as Sempat
Assadourian (1982) described it in previous works on the colonial period. He
indicated that growth under said institutions faced some limitations,
however, those limitations were not developed by the author.
In addition, more studies aimed at the same direction as that of
Prados, like the compilations of Llopis & Marichal (2009) and Bordo &
Cortes-Conde (2001). They showed a different image of the Hispanic
American economies after the independence. Although, the region
suffered from an economic downturn through the 1820s, because of the
revolutionary wars of Independence and its impact in everyday life, by the
1830s the economies were showing signs of recovery in significant areas
like mining. Still, the growth was not exceptional as in the US. Yet, it is
undeniable that at that time some aspects of the Hispanic American
economies were dynamic. However, can it be stated that those economies
were in the path to a financial revolution?
Sylla & Rousseau’s analysis of the financial revolution provides a way
to answer that question. The first factor they examine in answering the
question is the “sound public finances and public debt management.” In
that regard, the struggles of the Hispanic American economies are more
than evident. Right after the independence, those countries were in a
deficit mainly caused by the large military expenses and the difficulty of
collecting taxes in an unstable environment under a depressed economy.
On top of that, the new governments initiated a profound fiscal
reformation. For those reasons, many taxes were dismantled, such as the
tributo (a poll tax only for the Indians), the diezmo minero (mining tax), and
the taxes for salt, tobacco, and liquor, among others. Those actions were
aimed at liberalizing the economies. The idea was to ease the access of
investors to industries like mining and to increase the flexibility of the labor
market. However, the shift towards more direct taxes did not happen.
Despite those actions, revenue was deeply hurt. In the case of Mexico,
the mining tax was the main source of revenue for the government since
colonial times (Marichal, 2006), and the forego of that source stretched the
public finances, turning the government into taxing other sources to collect
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revenue. Similar actions echoed across the region, as the case of the tributo
in Peru (Quiroz, 1993). However, later on the government reinstated
tributo. Something similar happened in Colombia. The monopoly of
tobacco was the main source of revenue, and it was dismantled during the
1820s, just to be later re-established to cope with government expenses
(Jaramillo et al., 2001); the Hispanic Empire taxation system endured
beyond the independence, hampering the consolidation of sound public
finances.
Due to the meagre levels of revenue from the taxing system and to
keep up with the expenses of war throughout the conflict, many Hispanic
American countries resorted to issuing debt. Most researchers have
focused on the behavior of the issuing, the defaulting of foreign debt, and
the role of intermediaries during the nineteenth century. Those were the
linkages between governments and the markets centers, in this case
London and the London Stock Exchange (Marichal, 1989; Zendejas, 2020;
Buchnea, 2020; Llorca-Jaña, 2012). The most remarkable treat is the
cyclical behavior of the issuance with pull and push effects from the
international creditors, who were very keen to loan when money was
available disregarding information asymmetry. However, they were the
most strenuous in the sight of some downturn or default when money was
scarce. This situation resulted in waves of defaults that reflected the
performance of the exporting sector of Hispanic American countries. In
contrast, studies for internal debt are not as numerous (Quiroz, 1993;
Lpez-Bejarano, 2015) and their focal point is the forced loans and the
consolidation of existing debt. The debt consolidation process from 1820
included debt that was taken during the colonial period and gave way to
endless discussions related to whether this debt was to be settled by the
new governments, or it could be rejected. In the cases of Peru and
Colombia, although the bequeathed debt was recognized and
consolidated, it was rolled over unto new internal debt every time that a
consolidation process was underway.
The resonance of exportations, which issued and defaulted debt, is key
as it became the driving sector of the economy. Due to the size of the
national markets and the fragmentation of the Spanish markets, the main
source of revenue of the states were indirect taxes like the alcabala or the
almofarijazgo (customs taxes for internal and external trade). Those taxes
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remained after the settlement of new governments and increased their
yields with the countries opening to international markets (Bulmer-
Thomas, 2014; Marichal, 2006). The foreign trade taxes represented almost
50% of the revenue for the federal government of Mexico in the 1825-1831
period (Marichal & Carmagnani, 2001). The custom taxes proved to be an
efficient and easy way to collect revenue. It did not require high levels of
labor and physical infrastructure. Due to the importance of the custom tax
revenue to the total income of the government, the bulk of the national debt
issuance ended up being brought back by this tax. The case of Colombia in
the 1830s is remarkable: according to Jaramillo et al. (2001) the
government managed to have a balanced budget. However, the
maintenance of “sound public finances and public debt management” was
a challenge that the Hispanic American governments did not match.
Concerning “stable monetary arrangements”, Irigoin (2009) indicates
that after the independence the monetary union of the region under the
Spanish Silver Peso broke due to regional disputes of elites. The
fragmentation opened the threshold to competition between regional and
national mints to raise revenue via “inflation tax.” The result was a
circulation of coins with different metal ratios in the entire region as within
each country, just as it happened in the Dutch Republic. However, in this
case no institution was founded to function as the Wisselkank did. The
opportunity-cost of exporting bullion was high—opening profitable
opportunities by the arbitrage—due to the soaring process of silver and
gold in the world, this reduced the amount of silver circulation in domestic
markets (Marichal, 2006). Thus, the silver scarcity became a trait of the
region during the nineteenth century. Due to the disintegration, each
country employed a different monetary standard (bimetallism, paper
money, only silver). This situation increased the transaction costs within
regions and only augmented the costs of the transactions in regional
market due to the custom taxes on every country. It also stimulated capital
flight and affected the prices and interest rates. Money was scarce and
expensive in the region, and the used of inflation tax in some zones yielded
weak monies and climbed inflation. Thus, political, and economic instability
were two sides of the same coin.
Regarding the existence of “a variety of banks” and “a central bank”,
those financial institutions were not consolidated in the region until the late
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nineteenth century. That is why the region is called as “late banking”.
However, there were a few attempts of banking before the 1850s, many of
them unsuccessful due to the political conditions. In accordance with
Calomiris & Haber (2014), political institutions were unable to provide the
fragile equilibrium needed to have banks. These authors introduced the
notion of “Game of Bank Bargains,” a concept that entails that the banking
system of any country is the result of bargaining between the government
and the private sector (bankers, minority holders, depositors and debtors).
Each actor defends its interest, and the resulting deal is the creation and
distribution of the economic rents that the banking industry yields. The
goal here is to maintain the rulers in the political power as to provide
enough incentives to the private bankers to risk opening banks. Those
incentives could be privileges, such as monopoly in note issuance,
controlled access to the chartering of banks, and many others (Calomiris &
Haber, 2014, p. 39). Yet not all actors intervene in the negotiations. In their
view, the players of the “game” are determined by the institutions, like
property rights and political representation of the country. In this
framework, the weakness of the Hispanic American governments and the
power of regional elites, as the levels of representation of those in the
state’s institutions, determined the type of banks that could be established
in the region.
Under this paradigm, the political institutions shaped the resulting
banking system. This approach helps to understand the Latin American
banking development. For example, the Brazil empire founded the first
Banco do Brazil in 1808 with the arrival of the fleeing monarchy to the
territory. This bank functioned as a central bank, chartered by the
government with the monopoly of issuing the legal tender. In return, the
bank provided short-term and long-term loans to the government, which
was in dire need of revenue. This was the only way to rise revenue, as
increasing taxes were out of the question due to the strength of the local
and scattered elite of the vast territory. So, to keep financing the
government, the bank resorted to augment the number of banknotes,
making the “inflation tax” a common trade during the Brazilian nineteenth-
century (Calomiris & Haber, 2014, pp. 390-400). Although this early
experience examples an early development of a central institution, it
proved insufficient due to the closed ties of the Bank with the Central
Government (Marichal, 2021, p. 192).
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1
An Industrial Development Mexican bank established in 1830.
The case of Argentina is also of an early bank, the Banco de Dépositos
de Buenos Aires, which was founded in 1822 and later became the Banco de
Buenos Aires, and later Banco Nacional. This bank was created to supply the
means of payment to external merchants, which were in abundance in
Buenos Aires due to the starting boom of Argentina thanks to its easy
access to the Atlantic. The bank was also the internal trade supplier of
liquidity to the producers of the commodities that passed through the port
of the Buenos Aires. The common trait of both trades was the silver’s
scarcity, but the bank also serviced the government in their deficits (Cortés-
Conde, 1999). The bank also acted as the financial agent of the
government. One of the privileges granted to this bank was that it did not
have to comply with sound banking practices, and its owners were allowed
to capitalize it with loans from the same bank. Because it was controlled by
a narrow elite, it created the possibility for “crony” capitalism (Haber, 1997),
a phenomenon in which banks “allocated scarce credit among politically
influential insiders” (Calomiris & Haber, 2014, p. 22) distorting the market
by providing lower interest rates to the inner elite and rationing the credit.
The Banco Nacional modernized the credit supply during its existence but
the inconvertibility of its issuances, and the reliance on the government’s
fiscal capacity resulted in inflationary pressure, causing distrust on the
banknotes, which circulated at a discount (Marichal, 2021, pp. 199-201). A
similar experience was visible in the Banco de Avio
1
and later banks that
were set up in Mexico during the nineteenth century (Calomiris & Haber,
2014, pp. 331-354).
To complement the view on the underdevelopment of banks in the
region, Zegarra (2006 & 2014) identified the importance of the demand-
side for banking and financial services and stated that this was the most
defining factor to the establishment of banks, rather than the political walls
and requirements set by the government. He affirms that the economy
growth is the causation factor of the soaring demand for financial services
and banking, which in return created the incentives to the foundation of
banks, thus fostering the financial revolution. This view is consistent with
the establishment of banks in the region, because of the great number of
commercial banks established in the late nineteenth century. The Hispanic
American economy grew propelled by the export sector during the first
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2
A Capellanía is a means of payment for a pension created by a person in favour of a chaplain, which promises to perform masses in his name in a
determined parish. The sources of the pension could consist of land or money.
wave of globalization. The increased in the export activity produced a
demand for financial services that did not exist before. Thus, if we consider
the recession and scant economic growth of the Hispanic American
countries right after the independence, it is logical that there were not high
levels of demand for this type of institutions. But this is not what Sylla &
Rousseasu affirmed, hence, the discussion spins around the causal
relationship between economic growth and financial development. In the
case of Hispanic America, it is because of the unremarkable performance
after the independence that the region did not develop financial
institutions or is it because of the lack of financial institutions that the
Hispanic American countries did not perform as expected? Even more, the
Calomiris & Haber’s proposal only stands when the players (government
and private sector) are willing to endorse in the Game of Bank Bargain.
What happens when one of the players are unwilling to commit into this
bargain because there is no need for it? What if there is a supply of credit
that coped with the demand? The answer to those questions might be in
the existence and persistence of censos eclesiasticos.
The
Censos eclesiásticos
The censos eclesiasticos were a type of loans provided by religious
institutions, such as churches, parishes, convents, capellanías
2
, among
others. Censos were in use in all the Spanish territories since the time of the
Reconquista, when the Catholic Kings expelled the Muslims of the Iberian
Peninsula in 1492. From then on, the censos underwent numerous changes
until the nineteenth century (Wobeser, 2011; Lavrin, 1998; Bauer, 1983;
López Martinez, 1989). By the late eighteenth and nineteenth century, the
censo had become a type of mortgage that functioned as follows: a real
estate owner signed a contract in which he promised to give a stipulated
annuity in exchange for a payment or loan that was laden in his real estate
(which could be a farm, a house, a store in some cases, or even livestock).
The annuity was settled at 5% of the loan, the tariff was imposed by law,
and it was inelastic. The immoveable debt did not change ownership, and
the usufruct was retained in the owner. The annuity only expired until the
debt was settled, and because the debt was charged on the landed
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property, the debt could run for various lifetimes (Cascavita-Mora, 2016,
pp. 20-25).
Due to its specificities, like its restricted access, some scholars like
Colmenares (1974), Lavrin (1998), Ferreira (1999) and Ortiz (2016) assumed
that only landowners or hacendados could use this source of credit for their
agricultural activities. However, recent approaches to the subject have
identified this assumption as inaccurate. Wobeser (2010), Del Valle Pavón
(2020) and Cascavita-Mora (2016) show that by the late eighteenth century
the merchant class used this type of credit to fund their endeavors by
mortgaging their urban properties. More notably, in Cascavita-Mora’s
(2016) analysis in Colombia, the mortgaged proprieties like haciendas
(large states and ranches) or estancias (cattle farms) acccounted to only to
25 to 30 per cent of all loans and the urban properties took 45%. These
proportions can be seen by the time the censos were forbidden (Cascavita-
Mora, 2013, p. 44). Although the bulk of those studies are on the late
colonial period, they are important because the censos were only banned
until the mid to late nineteenth century in the region (Knowlton, 1969).
Unfortunately, the studies of the capital markets in Hispanic America right
after the independence are scarce, although recent work of Carlos Marichal
address this issue (Marichal, 2021)
In all the existing works, the idea of prestige and social networks
represent an important role in the granting of loans. Furthermore, the
relationships between the landowners and merchants with the abbots, or
priors (heads of the convents), and the parish priest seem to play a
prominent role. The acquaintance between the loan maker and takers
could assure the annuity’s payments, which was a way of dealing with the
information asymmetry factor but implying a regional characteristic on the
loans. Also, many of the convent’s heads and priests were members of the
ruling elite, so the membership on a familiar network could also act as a
helpful factor in the acceptance of loans. Those closed relationships with a
flat rate of 5% on the annuities, could explain the unwillingness of the
private sector to enter the Game of Banking Bargain. If the elite already had
access and certain control over the credit supply, why would they sit to
concede and share those privileges with the government? This situation
could also have acted as a driver to the persistent inequality the region.
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Evermore, recent studies have focused on private loans, which
incidentally remark the inelasticity of the interest rates. The flat 5% rate
provided by the ecclesiastical institutions was lower than the offered by
mercantile credit during the late colonial period, at least in the Colombian
case (Granados & Torres, 2023; Torres, 2014).
Another characteristic of ecclesiastic loans is their “rent-seeking”
nature. Wobeser (2010) indicates that the main objective of those loans was
to provide the clergy and nuns with a sustained source of revenue for their
subsistence and maintenance, and the sources of those loans were the
silver and coin from the ecclesiastical dowry. The dowry provided the
convents and parishes with a surplus of currency which, if it was not
allocated in those mortgages, would probably end up idle. The interest was
in allotting those loans in the more stable and long-living assets. The
mentality was clear in that aspect, and at the same time, the control of
those resources allowed them to consolidate the stable relationship with
the privates who were the loan takers. Furthermore, if we follow Zegarra’s
(2006 and 2014) idea, in the environment of recession and low economic
growth, like the one after the independence, where the demand for credit
was low, and the allocation of that capital was profitable to the loan makers
and enough to the loan takers. The circumstances allow me to raise the
question about the incentives towards the foundation of financial
institutions like banks.
The censos were forbidden in the Hispanic American countries during
the wave of liberal reforms of the mid-nineteenth century. In Mexico, the
Ley de Lerdo in 1856 removed the ownership of the land from ecclesiastical
institutions in favor of the renters, thus removing the capacity to create new
censos; in Colombia La Ley de Desamortización de Bienes de Manos Muertas
in 1861 clearly stipulates the restriction to this type of loans. The
dismantling of those loans was an attempt to undermine the political and
economic influence of the Catholic Church (Uribe-Castro, 2018) which, by
the time, had managed to maintain ties with a sector of the ruling elite. But
this also broke the market of capitals that existed since colonial times,
shifting the circumstances, and undermining the existing bargain system.
Once this system disappeared, a new one was necessary to cope with the
soaring demand for financial services resulting from the commodities
export boom of the late nineteenth century. In the case of Colombia, the
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first commercial bank, Banco de Bogota, was established exactly ten years
after the law of 1861. In the region, the number of commercial banks
started to rise at the same time, raising the following question: was there a
causation between the interdiction of the censos and the consolidation of
private banking in the region?
Conclusion
The Hispanic American Economic History of the nineteenth century
has focused on the insertion of the region in the international markets, so
the attention has been skewed towards the export-led growth that came
with the first wave of globalization (Bulmer-Thomas, 2014; Bulmer-Tomas
et al., 2006; Ocampo & Ros, 2011; Ocampo & Bertola, 2012) when the prices
of transportation plummeted, and the commodities prices skyrocketed.
However, the doubts cast by Prados de la Escosura about the “lost decades”
have led the attention to that period. Additionally, recent studies are
starting to focus on that, yet the studies of Hispanic American economic
development in the period after the independence are still in its infancy.
There is still a long road to cover on that field. Even though the
heterogeneity of each country experience is remarkable, some similarities
could be found. Case studies country by country are still required, and the
aim of this article is to foster new approaches.
Nonetheless, the existing works allow us to establish that a financial
revolution, as in the case of the United States or the Low countries, could
not be devised in the region. The sound public finance and debt
management, and stable monetary arrangements were far from achieved.
The political and economic instability impeded the development of a
securities market. Also, the lack of establishment and consolidation of
financial institutions like banks is more a symptom of the immaturity of the
capital market. Unfortunately, further works are needed to characterize the
capital market of the region, and for every country, after the independence.
Despite that, it can be stated that in the region existed a supply of credit
that might have coped with the demand for those services, making the case
that there is no one-size-fits-all approach to understand the Hispanic
American financial evolution. Furthermore, the unique characteristics of
those loans, like rent-seeking and close interpersonal relationships
between providers and takers, might be one of the reasons behind the
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immaturity of the capital market, which was only overcome with the
demise of the censos, during the liberal revolution of the mid-nineteenth
century. Further research is necessary to asseverate this with confidence.
It is undeniable that more studies are needed. Topics like the size of
the capital market, the supply and demand of credit in the region, the
sources and uses of the loans in the region after the independence are
foremost. Further research will provide insight to understand the causes of
the slow growth of Latin America.
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