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University of Alabama Press
Central America, 1821-1871: Liberalism Before Liberal Reform / Edition 1

Central America, 1821-1871: Liberalism Before Liberal Reform / Edition 1

by Hector Lindo-Fuentes, Lowell Gudmundson
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ISBN-13: 9780817307653
Publisher: University of Alabama Press
Publication date: 04/28/1995
Edition description: New Edition
Pages: 168
Product dimensions: 6.00(w) x 9.00(h) x 0.50(d)
Lexile: 1510L (what's this?)

About the Author

Lowell Gudmundson is Professor of Latin American Studies at Mount Holyoke College. Hector Lindo-Fuentes is Associate Professor of History at Fordham University.

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Central America, 1821â"1871

Liberalism before Liberal Reform

By Lowell Gudmundson, Héctor Lindo-Fuentes

The University of Alabama Press

Copyright © 1995 The University of Alabama Press
All rights reserved.
ISBN: 978-0-8173-0765-3


The Economy of Central America

From Bourbon Reforms to Liberal Reforms

Héctor Lindo-Fuentes

The rapid increase in agricultural exports that took place in the nineteenth century left an indelible mark on the economies and societies of Central American countries. On this issue, at least, agreement exists. A useful way to look at the economic transformations of the nineteenth century is through the prism of their legacy, and our attention should be directed primarily to the study of the impact of exports on the formation of the society and the state. For Héctor Pérez Brignoli the expansion of coffee cultivation that characterized the period "introduced fundamental structural changes in land markets, labor relations, business, and financial organization." Victor Bulmer-Thomas agrees with the substance of this interpretation when he says that the rapid growth in exports in the half century that preceded 1920 "transformed the region's social relations. The traditional élite, consisting of a small merchant class and landowners with extensive cattle interests, began to be replaced by a powerful group associated with the export sector either as growers, traders or financiers."

Until recently, the widespread consensus on the impact of exports on Central America was facilitated by the lack of knowledge of exactly what happened in Central America during the nineteenth century. Recent research has begun to explore exactly when and how that rapid export growth took place and how the fundamental changes mentioned by Pérez Brignoli were introduced. This comparative essay, possible because of recent historiographical developments, shows how the change in direction of the Central American economies was not, as commonly believed, the result of the Liberal reforms of the 1870s; the change began decades earlier and gathered speed after the opening of the Panama Railroad in 1855.

The expansion of these economies did not take place in a vacuum but rather in the shadow of a preexisting system. It is important to understand the tools available to the new countries that were used to adapt to the new realities. Thus, the point of departure for this essay will be a brief discussion of those aspects of the colonial heritage that had a direct impact on the economy. We are interested in the relationship between resources inherited from the colonial period and the needs imposed by the rapid growth of export agriculture in the second half of the century. Our aim is to explore how this interaction between external stimulus and internal response, between the legacy of the past and the promise of the future, gave a specific character to each country of the isthmus.

The Colonial Heritage

The first step in understanding the economic transformations is to discuss the meaning of the colonial legacy in light of its reaction to the pressure of export agriculture. The idea is widely accepted that, from the economic point of view, the foremost colonial heritage in Latin America was the hacienda. One of the better known statements of this idea was given by Stanley and Barbara Stein: "The most significant heritage of Iberian colonialism was the tradition of the large estate, producing foodstuffs and raw materials for local consumption or for export to Western Europe.... It represented a type of social organization, a source of social prestige and political power as well as wealth and income.... Until the twentieth century, the basis of oligarchy in Latin America has been the monopolization of, and access to, land ownership."

Our first task will be to put this notion aside, at least for the Central American case. There, among all factors of production (capital, labor, land, and entrepreneurship), land was by far the most abundant. The economic role of land and the hacienda, important as it was, deserves conceptual refinement. How could the control of the most abundant factor be the key to wealth? The haciendas were much more than simply landownership. They were economic units where all the factors of production were organized to carry out a productive activity; what mattered was the ability to acquire and organize all the factors. The hacienda was the physical location of those activities, but to identify wealth with land is a conceptual mistake. Other forms of landownership (ejidos and communal lands) existed where the same economic activities were carried out with greater or lesser success. (Ejidos were lands given to towns to use for grazing and agriculture; they belonged to the town, and their use depended on permissions issued by town authorities.) In addition, vast expanses of unclaimed lands owned by the crown (tierras realengas) existed. Given its relative abundance, land was not the most difficult factor to acquire. Entrepreneurial ability, credit, and labor were, in that order, the scarcest factors. It is not surprising, then, to observe that during the colonial period the biggest fortunes were made by such Guatemalan merchants as the marquis of Aycinena who, taking advantage of the regulations and privileges that derived from Spanish colonial policies, had the greatest capacity to organize complex economic activities that were the main source of credit. Notably, it was much easier to start as a merchant and end up owning land than the other way around. (It is difficult to talk about merchants or producers in an abstract sense; one of the characteristics of the economic life of the period was the limited division of labor, which means that for some individuals the main occupation was commerce and for others it was agricultural production.)

Of course, our discussion should not be limited to a comparison of production factors. The colonial regime implied a series of regulations that guaranteed unequal access to each factor. The limited educational system reduced the universe from which successful entrepreneurs could arise. Trade restrictions left international commerce (the main source of capital accumulation) in the hands of Spaniards and Creoles. Moreover, the essence of the colonial situation defined the Indian population as labor, and labor-recruiting practices were often violent and compulsory. Finally, access to land was determined by colonial regulations that created a mosaic of units with different legal statuses alongside vast amounts of tierras realengas. This situation created a clear division in society where the ethnic dimension and the links to colonial authorities carried great weight.

The commercial restrictions that were in effect during most of the colonial period had another notable consequence: they determined the destination of exports and the transportation network (limited as it was). Two outlets were used for the products of the region. The outlet on the Atlantic side was the Golfo Dulce, which opened to the Gulf of Honduras and was the locus for the commercial activity controlled by the Guatemalan merchants. They primarily controlled the exports of Guatemala, El Salvador, and Honduras. The southern countries more easily escaped the control of these merchants and the colonial authorities and often directed their limited trade to the contraband market via the San Juan River or via Panama and South America.

Economic activity was limited by more than the endowment of factors of production and the transportation network. Total demand was small. With most of the population living barely above subsistence levels and with low productivity, internal markets were limited. The export sector faced the constraint of extremely high transportation costs because exports produced on the Pacific coast had to be exported to European markets located on the other side of the Atlantic. The small size of the external sector was, then, the result of something more than colonial restrictions. Nevertheless, because of colonial restrictions and power relationships, the indigo trade, the main link with the outside world (even if a small percentage of overall economic activity), cast a long shadow over the rest of the economy.

Indigo Production and Trade

At the beginning of the nineteenth century, besides the small group of people dedicated to trade, small crafts, and the civil and military bureaucracy, most Central Americans were devoted to subsistence agriculture. Export agriculture, in contrast, was a relatively small part of economic activity. Nonetheless, it is worth analyzing it in detail because it represented the main source of income for the colonial elite and, as time passed, was the basis for the most dynamic sector of the economy. Indigo was the main commercial link with the metropolis. Its production and commercialization represented the most complex economic activity of the colony, and its producers and merchants were the most influential citizens. Indeed, the commercialization of indigo was the springboard for a small group to exert control over trade relationships throughout the colony.

A brief discussion of indigo's cultivation, processing, and commercialization exemplifies three characteristics of the colonial period: the persistence of traditional agricultural techniques that remained unchanged for centuries, the impact of commercial agriculture on labor, and the key role played by credit and commercial contacts for the Guatemalan merchant elite to appropriate most of its benefits. This latter point needs to be emphasized because the example of indigo illustrates how the control of trade and credit mechanisms was more of a key to economic power than mere landownership.

Although the area where jiquilite (the plant from which indigo was extracted) was grown ranged from western Guatemala to the coast of Lake Nicaragua, most production occurred in El Salvador. Descriptions of its cultivation and processing in the eighteenth century differ little from similar descriptions written a century earlier. The eighteenth-century description of the method of cultivation is as follows. Land was cleared in January and February. In March the land was torched, and the seed was broadcast for it to spring with the April rains. With the arrival of May the weeding began and lasted until June. The procedure was repeated at the end of August or early September. Later that month or in October the plants were harvested and processed.

Heavy bundles of jiquilite branches were brought to the indigo works (obrajes) for processing. The extraction of the dye was carried out in two brick vats placed next to each other at different heights. The harvested leaves were placed in water in the higher vat. After ten or twelve hours, when the leaves were sufficiently decomposed (the fermentation point could be recognized because the liquid turned a light green), the mix was passed to the second vat. Once the mix was in the second vat, a paddle wheel operated manually or by animals constantly stirred the water until its color changed first to light blue and then to a deeper shade. The shade indicated the saturation point (punto), that is, when the concentration of indigo reached its maximum, a determination made by the puntero (the individual in charge of identifying the saturation point [punto], at which time the water had to be drained). Once the puntero was satisfied with the shade of blue, he stopped the wheel. When the water was still, a blue sediment slowly settled at the bottom of the vat, and the water recovered its natural transparency. At the end of this stage the water was drained, and the sediment was put to dry in cone-shaped cotton strainers. The dry indigo was wrapped in straw mats (petates) and packed in the 150-pound leather bags (zurrones) used to ship it to market.

No barriers to entry that would lead to a monopolistic structure were created by the knowledge needed to carry out these activities (transmitted by tradition), the capital investment (simple brick structures), or the labor demands (limited to harvest time). On the contrary, small producers (poquiteros) used a slightly different and more elaborate processing technique that yielded the highest quality indigo. In fact, up until the end of the nineteenth century the small producers played an important role in total production.

Labor shortages occurred during harvest time, so landowners, in complicity with the authorities, used tricks to obtain labor. By the end of the colonial period the repartimiento (the coercive labor system whereby for a few weeks every year the Indian towns had to provide a certain amount of labor to work on roads and haciendas), debt peonage, and wage labor were the principal means of obtaining labor for commercial agriculture. Labor shortages were such that, by the end of the eighteenth century, the crown authorized the repartimiento of mestizos, mulattoes, sambos, and blacks to work in indigo obrajes. Although the Cortes de Cádiz abolished all forms of compulsory labor, the practice of repartimiento, together with debt peonage, continued. Following long-established colonial traditions, local economic imperatives proved more powerful than laws passed by distant authorities.

According to the instructions of the deputy of the Kingdom of Guatemala to the Cortes de Cádiz, indigo was "nearly the only product that sustains the commercial relations with the metropolis." The main distribution networks were organized around its trade, with the Guatemalan merchants serving as arbiters. They constituted, in Troy Floyd's words, "a monopoly comprised of a phalanx of Creoles and peninsulars, closely knit by ties of marriage, blood, and commercial interest." The power of the merchants stemmed from their links with commercial houses in Spain (who bought the dye and, in exchange, sold manufactures), their role as providers of credit, and their ability to create a system practically unassailable by their competitors. The system worked more or less as follows. The small indigo producers took their product to the local fairs if they could transport it and, if not, sold it to intermediaries or to big producers who had access to mules. The most important buyers at the fairs were the big producers who owned mule trains to make the trip to the great annual fair in Guatemala, where the Guatemalan merchants waited, ready to play their triple role as indigo exporters, importers of European manufactures, and money lenders. The producers, after endless bargaining, left the fair with loans in money or in local or imported products, all received from the merchants, and on arrival in their localities became distributors selling in local fairs or placing the merchandise through third parties. Through this process the fate of the Guatemalan merchants was intimately linked to that of the producers of El Salvador, Nicaragua, and Honduras, and the fairs were the stage for the most important commercial transactions.

Controlling credit also permitted merchants to control the commercial activity generated by the repartimiento de bienes (the method used by Spanish authorities to force Indians to buy goods). The alcaldes mayores (the colonial authorities who had jurisdiction over districts of the Captaincy General of Guatemala), who needed substantial sums as deposit or bond demanded by the colonial authorities, received an advance from the merchant. The alcalde mayor's objective was far from innocent. The alcalde mayor was committed to distribute merchandise, thus starting the cycle of repartimiento de bienes.

The system led to much friction; the relationship between indigo producers and merchants, for example, was rocky. The former had countless complaints against the latter, who used their economic and political power as leverage in discussions on prices or credit terms. To mediate in these conflicts the colonial authorities made intermittent efforts to regulate indigo prices and decreed the creation of the Montepío de Cosecheros de Añil (Indigo Growers Credit Society), an institution designed to compete with merchants in the credit market.

For economic and political reasons it was difficult to confront the power of the merchants. After all, because of their contacts in Spain they held the key to trade with Europe, and because of the ability to extend credit they could control internal distribution networks. Some of these merchants were skillful peninsular businessmen who had seen the commercial possibilities of indigo and had settled in Guatemala, where they rapidly established links with the oldest and most prominent families of the capital. In sum, they had the knowledge of commercial practices on both sides of the Atlantic, a rare skill in the colony.

The main participants in this exchange were the Guatemalans and the Salvadorans. Hondurans and Nicaraguans participated to a lesser degree, with some indigo or with cattle sold in the fairs to provide meat or hides to manufacture zurrones. The link between internal markets and the indigo trade, created by peculiar credit practices that will be discussed in the next section, allowed markets to have a reach that, given the transportation difficulties, would not have been possible otherwise. The profit margin of indigo, a product with high value per unit of volume, allowed it to absorb the high transportation costs, which explains why producers were willing to make the long trips to Guatemala from Honduras or El Salvador. In addition, on their way back from Guatemala, these producers carried imported products and local crafts that by themselves would not have justified the trip. Costa Rica's links with the indigo economy were weaker, although it engaged in the regional trade of tobacco and cattle. Costa Rica and Nicaragua, given the geographic location of both countries, had their natural trading partners in the south and did engage in legal and illegal trade with South American markets. Not surprisingly, the Guatemalan merchants fought that trade every step of the way. Costa Rica's imports from Panama were embargoed on a number of occasions as a result of explicit pressure coming from the Guatemalan merchants and their agents in León.


Excerpted from Central America, 1821â"1871 by Lowell Gudmundson, Héctor Lindo-Fuentes. Copyright © 1995 The University of Alabama Press. Excerpted by permission of The University of Alabama Press.
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Table of Contents


1. The Economy of Central America: From Bourbon Reforms to Liberal Reforms Héctor Lindo-Fuentes,
The Colonial Heritage,
From Traditional to Export Agriculture,
Export Agriculture and Trade,
2. Society and Politics in Central America, 1821–1871 Lowell Gudmundson,
The Conservative Interlude and Liberal Challenge,
From Corn and Cattle to Coffee: Land Tenure Policies,
The Church Question: Mortmain and Life's Blood,
Secularization and the Clerical Counteroffensive,
Society Transformed: Economic and Demographic Bases,
Society Redefined: Race Mixture and Ethnic Identity,
Suggestions for Further Reading,

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