Joseph S. La Cascia’s brief book supplies useful basic data for the study of Mexican capital formation. This subject is of unusual interest, since Mexico has been able to provide a large amount of domestic funds for investment through large and recurrent national government deficits. Moreover, despite deficit financing, it has achieved rapid and continuous economic growth without excessive inflation. This accomplishment can be attributed largely to the differentiated and centrally-controlled character of the Mexican financial structure and to success in maintaining the liquidity of various types of government and bank credit instruments.
A school of thought developed in the United States through the theoretical work of John G. Gurley and Edward S. Shaw at Stanford University is pertinent to the Mexican experience in capital formation. A number of students following along these theoretical lines have examined Mexican financial organization to gain greater understanding of its relation to inflation and economic development. Notable among these are Dwight S. Brothers of Harvard University and Leopoldo Solís M. of the Bank of Mexico, who have made considerable progress in revealing the role of the financial structure in development as to both Mexican practice and the underlying Gurley-Shaw theories.
Unfortunately, however, this reviewer finds little in La Cascia’s work that adds to the knowledge of this subject. There are several original breakdowns of investment volume both as to source and direction. But the data are insufficiently analyzed. Moreover, this reviewer believes that in the study of Mexican capital formation, as contrasted with the study of the entire Mexican financial structure, further progress lies in an investigation of the way credit flow decisions are made. The ability of the Mexican banking system to promote development through deficits without undue inflation depends largely upon selective credit control. For this reason the planning and productive direction of investment are of paramount importance in understanding Mexican capital formation. La Cascia barely touches upon investment planning. Perhaps at this stage it is impossible to obtain the data needed. As in other countries, top decision-making in Mexico is not a completely open book.
The second volume, Estructura financiera y desarrollo económico, consists of six papers resulting from a seminar on the subject of the title held in Argentina in 1964. It is highly significant, because it represents advanced thinking along the theoretical lines begun by Gurley and Shaw. It is also the work of the leading exponents of this approach and involves theoretical collaboration among economists in three nations. Especially noteworthy are the attempts of Guido Di Tella to introduce microeconomic analysis and the construction of a Mexican growth model related to financial control by Leopoldo Solís M.
It is impossible in a brief review to describe or analyze the six articles presented. The first is a historical and comparative analysis of Mexican financial experience by Brothers. Then follow Guido Di Tella’s article on the theory of the firm and financial restriction, two articles by John G. Gurley on the relation of financial structure to economic development, an article by Edward S. Shaw on structural inflation, and an article by Leopoldo Solís M. on financial influences on development. In general, it may be stated that this series of articles is one of the most important contributions made in recent years to the theory of economic development. It should have considerable influence in Latin America.
