One of the greatest apparent anomalies in Latin America’s history is the influence that liberalism enjoyed between independence and the Great Depression. Historians have generally believed the ideology to be chimerical, characterizing it as ideas borrowed from their European context and slavishly applied to countries with very different historical traditions, cultural heritages, economies, and social systems. Most studies have focused on liberalism’s political content, emphasizing the struggle for constitutional representative government, universal civil rights, and the separation of Church and state. They conclude that the ideas, while noble, were illsuited to Latin America’s traditional, hierarchical social structure and thus probably destined to failure.1 Few historians, however, have examined liberalism’s economic performance in the light of this controversy.

Some social scientists have argued that in its economic manifestation Latin American liberalism developed in response to the special needs of the New World and lent itself admirably to export-oriented countries.2 This article will test this assertion by examining the economic policies of one of the most long-lived liberal regimes in Latin America, Brazil’s First Republic (1889–1930). It will first examine the actual activities undertaken and then pose two questions: Did the economic policies themselves conform to the essence of liberalism? If so, were they adequately suited to the Brazilian reality?

Overthrowing the monarchy in 1889, Brazilian republicans installed an economically liberal, republican form of government to dismantle the imperial state which they believed had retarded the economy. The prevailing historiography characterizes the regime that followed as non-interventionist, decentralized, and favorable to foreign investment. Supposedly only with the 1930 Revolution and Getúlio Vargas’ rise to power did an activist, developmentalist state emerge.3

Since the Vargas administration is held to have marked the death of the liberal regime, we will employ its achievements as criteria for measuring the nature and degree of state economic activity during the First Republic. The main innovations that have been attributed to Vargas’ governments in the 1930–1945 period can roughly be grouped into four non-exclusive categories: centralization, regulation, incentives to private enterprise, and direct state ownership.4

In contrast to Vargas’ centralized regime, the First Republic is generally viewed as a loosely bound federation of near-autonomous states with a weak central government performing only the most essential of tasks. Unlike the more dynamic Vargas administration, the federal government during the First Republic supposedly made little effort to centralize power by subjugating the states or organizing civil and political society. The level of national political and economic institutionalization was also low.5

While much of this characterization is accurate, this study contends that the federal government in the 1889 to 1930 period was considerably stronger and more economically active than has generally been recognized. True, the liberal regime made little effort to organize such groups as trade unions, peasant leagues, or middle-class associations; if anything, it sought to some degree to prevent them and to maintain a demobilized populace. Nor did it institutionalize formal networks of political command, but rather took advantage of a pyramidal system of personalistic, clientelistic agglomerations that were formed on the local and state levels. On top of the pyramid, however, stood the president of the republic. The “politics of governors,” arranged at the turn of the century, theoretically provided the state governors a great deal of local autonomy in return for their total support of the president’s policies on the national level.6 Nonetheless, the decidedly greater resources of the federal government meant that national-level decisions generally outweighed state ones in importance, even impinging upon the autonomy of the states.

Although the states formally enjoyed considerable fiscal and economic powers, the poverty of most prevented them from taking full advantage of their rights. The 1891 constitution ceded to the states all public lands except those necessary for the national defense. The individual states consequently determined legislation concerning subsoil rights. Assured a secure revenue source by the constitution, states could levy export, industrial, and professional taxes. They also taxed unconstitutionally all goods in interstate commerce. However, since the export tax provided the bulk of state revenues and most states exported little, they had to plead with the union for funds. Another potential source of income derived from the states’ right to contract foreign loans independent of federal approval.7 Nevertheless, since foreign financiers often demanded a federal guarantee before they would loan to the states, the central government enjoyed a virtual veto power in many cases. The only states to consistently escape federal financial tutelage were São Paulo, Rio Grande do Sul and, to a lesser degree, Minas Gerais.8

The federal government was able to centralize power to a much greater degree than has generally been acknowledged because it controlled important financial resources. Republican federal expenditures, after an initial decade of decline in the 1890s, quickly thereafter outstripped imperial real totals despite the decentralization of taxation. While the real budget doubled between 1889 and 1930, it grew fivefold between 1899 and 1930 (see Figure 1). The rate of growth of real federal spending for the entire First Republic was 1.92 percent a year, a little higher than the 1.86 percent recorded by the supposedly more dynamic and interventionist Vargas regime between 1930 and 1945. If one considers just the 1900 to 1930 period, the expenditures of the central government mounted at a yearly rate of 5.2 percent, almost triple the 1930–1945 figure.9 Admittedly, the First Republic’s treasury recorded such imposing percentage gains partly because it began in 1889 with a relatively low base. However, if we examine the union’s spending as a percentage of GNP, we discover that its average of 11.5 percent for the First Republic surpassed contemporary figures for Great Britain and the United States and equaled that of Vargas’ first tenure in office (see Figure 2). Indeed, the median for the First Republic was significantly higher than for the Vargas years, 12.7 percent to 10.6 percent.10

The federal government’s resources allowed it to exercise considerable sway over the states with revenues and expenditures constituting almost double that of all states combined. In fact, its percentage of total tax revenues (federal, state, and municipal) stood at 58.6 percent for the 1907–1930 period, exceeding its share under Vargas (see Figure 3).11 In contrast to conventional wisdom, the First Republic was more fiscally decentralized during its last years than it was at the beginning. The federal government also borrowed abroad nearly twice as much as all of the states and municipalities together.12 Superior wealth afforded the union a far greater impact on the nation’s economy than the states exercised, allowing it to participate much more actively in the construction and administration of the export infrastructure, to grant more concessions with profit guarantees to private companies, and to extend more loans than did the states.13 Only in São Paulo was the state more economically active than the federal government.

The central government’s funds also enabled it to maintain a repressive apparatus substantially larger than all of the provincial armies combined. Its advantage over the state forces grew with time: whereas in 1889 the federal government had sixteen percent more men under arms than the states, by 1920 its margin had almost doubled to twenty-nine percent.14 Thus while the federal government had fewer troops stationed in São Paulo than the state did, if necessary it could bring in superior forces.

Law, in addition to force and wealth, contributed to the union’s concentration of power. The liberal Constitution of 1891 made the central government preeminent on matters relating to foreign countries or to relations between the states. As a result, it dictated tariffs, treaties, incorporation laws, and statutes relating to interstate commerce. On the same grounds of representing the collectivity of states, the union took precedence in national defense issues (an ever more widely interpreted area) and controlled money and banking legislation. Perhaps most important of all, the constitution granted the federal government the right to physically intervene in the states when the constitutional order was threatened, in essence providing a blank check to federal leaders.15

Still, one could argue that all of these factors contributing to the supremacy of the federal government did not constitute a centralization of power because the states controlled the federal apparatus. Some evidence supports this view. There was no national political party for most of the period; rather, politicians were recruited through state parties and rose first through state offices. Almost all presidents of the republic had first served as governors of their states and headed their local parties. Decisions on presidential succession, the key issue in the politics of governors, were reached by agreement between the leaders of the most important state parties. Congressional delegations in Rio usually maintained a high level of solidarity and followed the dictates of state leaders. Nonetheless, since state leaders frequently were major figures in the federal government, they also had to represent more than narrow provincial interests.16

The political system of the First Republic was two-tiered; the three most prosperous states, São Paulo, Minas Gerais, and Rio Grande do Sul, controlled the federal government while the other seventeen struggled to gain favor. In the weaker seventeen, politicians’ authority often derived from client–patron relationships to national leaders (usually from the three principal states or at least representing their interests) rather than from an independent local power base. Frequently politicians were imposed on those states either through political stratagems or by force. Thus at a minimum, political power was concentrated in three states. But in fact not even the triumvirate directly controlled the federal government; national decisions were reached through bargaining and compromise. Federal leaders had to placate the oligarchies of all the states, not just the three wealthiest. In addition, the federal treasury developed powerful interests of its own because of its role as intermediary between foreign investors and the native ruling class. As a result, leaders of the triumvirate sometimes saw their wishes go unfulfilled. One of the best examples of the lack of congruity between federal and state policies occurred in 1905. President Francisco de Paulo Rodrigues Alves, a former governor of São Paulo and a major coffee planter himself, refused to offer federal funds to finance the valorization of coffee because he believed that the loan would jeopardize the union’s already shaky finances. When the states of São Paulo and, to a lesser degree, Minas Gerais and Rio de Janeiro, carried out the defense of coffee on their own, it was as much a sign of relative federal independence from provincial forces as of state autonomy.17

Employing even the most simplistic definition of independent power, the central government rated highly. Had the federal government controlled nothing more than its direct territory, the Federal District (the city of Rio de Janeiro), it still would have been a formidable force. If the Federal District had been a state, it would have enjoyed the sixth largest population in the country, the largest port, the second largest tax revenue (equal to about twenty percent of all states’ earnings), and the second largest police force. During most of the republic it was the nation’s banking center, holding forty-five percent of all deposits in 1921 and in 1928 still housing almost thirty percent. The Federal District also served as Brazil’s industrial capital until the 1920s, and even contributed twenty-seven percent of total production in 1930.18 Thus, through a variety of measures we have seen that while some states enjoyed a remarkable degree of autonomy, the federal government during the First Republic was substantially more imposing and centralized than has generally been assumed. Since liberal regimes were supposedly centralizing power all over Latin America—particularly Argentina and Mexico—it is not surprising that the Brazilian federal government asserted considerable force.

The state’s concentration of power allowed it to regulate important areas of the economy. State regulation, according to liberal thought, should be minimized to allow the forces of supply and demand to direct investment. The standard view is that this is precisely what occurred during the First Republic. And indeed, at the outset, republican politicians withdrew state supervision from many sectors which the empire had closely guided. In the course of the regime’s forty-year history, however, politicians came to intervene in such areas of the export economy as banking, transportation, and public utilities. They also regulated to some degree both employment practices and food prices.

Banking intervention involved two principal areas: foreign exchange operations and interest rates. The union entered the exchange market through the Caixa de Conversão (1906–1914) and the Caixa de Estabilizado (1926—1930). These federal institutions stabilized the exchange rate by making judicious purchases and sales of Brazilian and foreign currency. World War I prompted the federal government to oversee all exchange transactions, a measure that was institutionalized in 1921 through the creation of the General Inspectorate of Banks. In the waning days of the First Republic, Congress granted the federally owned Banco do Brasil a monopoly over all exchange.19

The union also attempted to control interest rates through the Banco do Brasil. During times of crisis the bank received federal funds to pump into circulation. This function was formalized in 1921 when Congress established a rediscount section in the Banco do Brasil and granted it a monopoly of issue between 1923 and 1926. By influencing the circulation and quantity of money the bank substantially affected interest rates.20

The federal government regulated most of the railroads in the country because their concessions ceded to the government the right to set rates, determine routes, and decide the type of equipment to be used. The Ministry of Transportation and Public Works actually exercised these powers; it maintained low rail rates and demanded routes into unprofitable areas despite loud railway company protest. Very few states outside the triumvirate exercised their prerogative—more than two-thirds of the concessions in 1930 were federal—and the states generally imitated the federal government in the scope of their regulation.21 Similar controls prevailed in the area of shipping where the Constitution of 1891 enjoined foreign freighters from participating in the coastal trade. Domestic shipping became the monopoly of Brazilian lines. An 1897 law also forbade foreign ships from fishing in Brazilian waters though this was only enforced in the 1920s.22

Public utilities came under state oversight because, like the railroads, their concessions called for the grantor to determine rates, routes, and equipment. Since most of the awards were made by states and municipalities, in principle they controlled the electrical light and power, gas, sewage, tram, and telephone companies. In general the companies remained rather independent from the regulatory agencies, but in the larger states more pressure was brought to bear by the governments.23

Labor legislation was quite limited; there was no attempt to control workers by organizing them in government-manipulated unions. Only in the 1920s did Congress approve child and women’s labor laws, paid vacations, and retirement pensions and even these statutes touched relatively few people and were not enforced. The most significant labor legislation required the hiring of Brazilians: two-thirds of the crew members on ships in the coastal trade, one-half of all employees in foreign-owned banks, and all telegraph operators. However, the state intervened in the labor market not primarily through legislation but rather through the violent suppression of strikes and the imprisonment and deportation of labor leaders.24

The First Republic experimented with price controls as well. In the 1890s the capital opened its own slaughterhouse which provided citizens with cheap meat and prohibited competitors from selling above the government’s price. The First World War provoked more far-reaching legislation. The president established a Superintendency of Provisions which regulated Brazil’s food prices and distribution until 1926; he also authorized the construction of a federal retail warehouse in Rio to sell at prices determined by the Federal District’s prefect.25 Thus we find that the supposedly laissez faire state of the First Republic in fact regulated some of the most important areas of the economy. In numerous cases, such as banking and railroads, it actually translated strong potential power into practice.

In addition to controls on the public sector of the economy, the state effectively encouraged private enterprises through the granting of incentives and concessions. While liberalism certainly preaches the virtues of private enterprise, active fostering of companies would seem to contradict the tenets of laissez faire. Nonetheless, Brazilian politicans did exactly that.

The state was particularly energetic in expanding the transportation infrastructure. Ports and railroads accounted for about one-quarter of the internal debt and half of the foreign debt. The federal Ministry of Public Works and Transportation consumed a quarter of the budget, second only to the Ministry of Finance. If one includes the portion of the budget dedicated to repaying loans incurred to improve transportation, well over one-third of government spending went to transportation and public works, especially the former.26 Almost every railway initiated received either profit guarantees, duty and tax exemptions, and/or land. The union also occasionally purchased stocks in financially stricken lines or guaranteed loans to help bail them out. These various payments consumed a substantial part of the budget. At its height in 1898, fully one-third of all federal spending was comprised of railway subsidies; state grants were at a much lower level.27 Subsidies to maritime companies cost the treasury an average of more than US $1,500,000 a year between 1908 and 1930. By the end of the period, yearly totals almost reached US $4,000,000. The states did not subsidize any important shipping lines and consequently did not enjoy the regulatory power that the concessions included.28

Federal and state governments also made substantial direct contributions to the welfare of agriculture. These activities have been largely overlooked by historians who have concentrated on the “struggle for industrialization” rather than focusing on agriculture where most direct aid went. The federal government actively encouraged agriculture through a program of subsidies, prizes, duty exemptions, guarantees, and loans. The union, for example, guaranteed profits on central sugar mills, financed immigration to provide cheap agricultural labor until 1896, offered land for colonization projects and experimental stations, authorized rewards for the efficient production of wheat, cotton, and silk, and granted duty exemptions for agricultural machinery, hybrid seed, and breeding cattle.29 The states followed similar practices on a smaller scale except São Paulo which mounted massive agricultural loan and immigration projects.

By far the most important part of public agricultural loans was spent in the promotion of coffee. Valorization, a series of ad hoc measures to drive up the price of coffee by keeping it off the market, absorbed about US $133,000,000 of federal funds (mostly borrowed from abroad) while São Paulo spent US $136,000,000 to protect the crop.30 Between the two, they spent approximately the equivalent of the entire federal budget of 1929.31 The federal government extended other loans to planters, but usually only short-term commercial credit, especially in times of crisis. A major symbolic act was the establishment of a national mortgage bank in 1924. Capitalized at 50,000 contos (approximately US $5,300,000), it was authorized to issue up to 1,000,000 contos in long-term mortgages. The conservative monetary policies of Presidents Arthur Bernardos and Washington Luis, however, prevented the bank from initiating operations. The states of Minas Gerais, Paraíba, Paraná, Rio Grande do Sul, and São Paulo established public agricultural mortgage banks during the First Republic which actually came into operation. The most important was that of São Paulo which was entrusted with the state’s valorization program after 1926.32

Industry also benefited from federal aid, but to a considerably lesser degree than agriculture. The union awarded loans to industry primarily in the 1890s, during World War I, and to a limited degree after 1924. Between 1893 and 1895 about US $17,000,000 were earmarked for industrial loans although a considerable part never reached industry. Thereafter, any long-term loans that were forthcoming served heavy industries. Coal mine owners received more than US $1,500,000 in federal loans and their product was preferentially purchased by federal transportation companies.33 The steel industry also benefited when in 1918 Congress authorized loans of up to US $12,500,000 to spur steel production; two companies took advantage of the offer. Six years later, Congress increased its award to eighty percent of the value of three steel mills at six percent interest and with a five-year moratorium on repayment. The hard pressed federal budget prevented this latter program from being realized, however. The cement and caustic soda industries gained their initial boost from federal profit guarantees and loans.34

Light consumer industries received incentives on a smaller scale. For example, the state government of Rio Grande do Sul guaranteed a six-percent profit to a packing house making it eligible for payments of almost US $300,000 a year. Similarly, Congress offered a prize of US $13,600 to the first two silk weaving factories in the country and more than US $130,000 to encourage the construction of nine cottonseed factories in Brazil’s Northeast.35 The treasury also relieved industries in times of tight credit such as World War I by increasing the money supply and directing the Banco do Brasil to extend short-term (up to six months) industrial loans. The textile industry profited greatly from this policy.36

Industry frequently benefited from tariff protection as well. Although spokesmen for the landed oligarchy generally opposed any divergence from free trade, the treasury had to tax imports because the ruling class would not accede to significant land or income taxes. While providing a modicum of protection to industry, the customs barriers in general could not be prohibitive because that would undercut their revenue-gathering function. Nonetheless, the United States Federal Trade Commission found in 1916 that Brazil had the highest tariff in the Western Hemisphere. Also with the intent of aiding industry, Congress passed in 1887, and strengthened in 1903, the lei de similares prohibiting duty exemptions for imports which national manufacturers could competitively produce.37 Thus during the First Republic the state offered a wide variety of incentives to agriculture, transportation, and, to a lesser degree, industry through such measures as loans, guarantees of interest, prizes, and tariff privileges.

The state’s greatest departure from the precepts of laissez faire liberalism was the nationalization and administration of some of the key sectors of the agricultural export economy. While the left in England, France, and the United States was vehemently, but unsuccessfully, demanding the nationalization of its country’s railroads, Brazil’s oligarchs quietly took over two-thirds of the national network by 1930; the federal and state governments (almost exclusively São Paulo, Minas Gerais, and Rio Grande do Sul), administered more than half of the country’s rail kilometers. When the First Republic ended, the Brazilian state ranked as one of the seven most active in railroading in terms of kilometers controlled in the world. In 1930, the central government owned six times as much track as all of the states combined. It gained patronage power by leasing some lines to the states. Even so, federally run trains carried four times more cargo.38 The union also controlled the country’s telegraph systems through the Repartição Ceral de Telégrafos and owned outright, by 1925, over two-thirds of the telegraph stations and the great majority of the lines. From 11,900 kilometers in 1890, the government expanded the national telegraph network to 58,948 in 1930.39 The federal government played a large role in the maritime infrastructure as well. After 1909, the union possessed the largest shipping line in South America, Lloyd Brasileiro. Lloyd Brasileiro’s carriers constituted over half of the domestic merchant fleet.40

In addition, the central government owned the largest commercial bank in the country, the Banco do Brasil which held one-quarter of all deposits. The federally owned caixas econômicas (savings banks) contained another ten percent of deposits. The states also created their own caixas.41 Finally, the states and cities occasionally nationalized public utility companies. They took over companies, for example, in the cities of Manaus, Bio Grande do Sul, Salvador, and São Paulo, but usually soon leased them back to another private firm.42

Strong evidence, then, supports the thesis that the state during the First Bepublic was relatively more centralized and played a substantially more active role in the economy through regulation, incentives to private enterprise, and direct ownership than the prevailing historiography would have led us to expect. This finding presents an apparent paradox, however. Why did politicians who represented a landed oligarchy that ardently championed liberalism allow the state to become an important economic actor?

One interpretation argues that, in fact, a “bureaucratic estate,” not the export-oriented bourgeoisie, ruled the country in its own interests through the manipulation of a patrimonial state. Thus the First Republic was not liberal, but rather a continuation of the patrimonial colonial tradition.43 Does this explain the surprisingly active economic participation of the state between 1889 and 1930?

All evidence indicates that the export-oriented members of the bourgeoisie (especially planters, but also ranchers, import-export merchants, and bankers), were dominant throughout the First Republic and exercised considerable control over the state. Whatever autonomy politicians enjoyed under the empire was largely ended by the republican revolution and the Constitution of 1891. Without the emperor’s Moderating Power, the new men who came to power after 1889 were chosen to a great degree on the local level, especially from the three dominant states, to represent local interests which were largely defined in economic terms. Hence, federal politicians—once again, especially from the triumvirate—could no longer remain aloof from local pressures and freely manipulate local political power from above. Nine of the ten presidents elected during the period and most prominent state leaders were either born or married into the landed oligarchy. Even those politicians without blood relationships to the ruling class were recruited to represent its interests and accept its leadership. Most public policies—especially taxation—favored the export oligarchy.44

If the state’s substantial economic activity was not the product of a bureaucratic estate, did it result instead because the export oligarchy did not favor liberalism? Examination of over 150 different newspapers and trade journals from all over the country throughout the period in addition to congressional debates, presidential and ministerial reports, and other official documents indicates that liberalism was indeed the dominant ideology. Its basic principles were rarely questioned.45

If liberals ruled, why then did they permit the state to intervene so extensively in the economy? In fact, the actions of the state during the First Republic did not contradict liberalism, but rather respected its basic tenets. But the principles, formulated in industrializing Europe, manifested themselves differently in late-developing agricultural Brazil. It would be unfair to judge the Brazilian system against the models of liberal philosophers such as Adam Smith, David Ricardo, or Jeremy Bentham; no nation ever realized that model. Even in Great Britain—the country that most nearly approximated the ideal—the state maintained an important economic presence even at the zenith of its laissez faire period. France was substantially more interventionist as were the other European countries.46 Thus laissez faire is a relative, not an absolute term.

To dismiss a country as non-liberal if it did not institute the political reforms like representative democracy that came to be associated with the European model is also inaccurate. Although political rights grew out of the same Weltanschauung as property rights, the two are not indivisible. England established a liberal economy long before it enjoyed truly representative democracy. True, Brazilian and Latin American liberals in general failed to champion civil rights. But this failure did not stem from a lack of liberal convictions. Rather, it resulted from a difference in liberalism’s class basis. In contrast to Europe where the leading liberals were members of the industrial bourgeoisie or the urban middle class, in Latin America export-oriented planters and ranchers who had long held power instituted the liberal regimes. Thus it is necessary to isolate liberalism’s economic principles in judging the Brazilian experience.

In its essence, liberalism preached the inviolability of private property and the primacy of the market. Brazil’s governing politicians strongly believed that the state should refrain from granting non-economic advantages such as monopolies or corporate privileges so that capital accumulation would occur only in the marketplace in transactions between free and legally equal individuals. The state’s role was to guarantee the free reign of supply and demand of the factors of production which, through the vehicle of individual self-interest, would maximize general public welfare. The state was simply to insure that the market mechanisms of capitalism functioned by prohibiting any extra-economic coercion and safeguarding the sanctity of private property. Laissez faire, however, did not mean that the state should completely avoid all economic activity.

Even such liberal fundamentalists as Adam Smith and Paul Leroy-Beaulieu argued that the state should play some part in the economy. Smith included three areas in the public sphere: the judicial system, the national defense, and public works too costly or unprofitable to attract private investors. Leroy-Beaulieu, a French economist usually cited by contemporary Brazilians as the major expert on financial matters, stressed a corollary to Smith’s position. The state was obligated to honor its debts by repaying its loans and maintaining the value of paper currency in circulation (if it unfortunately existed).47 The gradual economic intervention of the Brazilian state resulted in large part from applying these basic principles. However in a late-developing agricultural-export country such as Brazil, the formulas conceived in industrialized Europe had substantially different consequences. State activity was directed not so much by abstract principles as by the pragmatic need to conform to the country’s economic and political realities.

The factor that most influenced public policy was Brazil’s relative poverty. Although exports served as the motor of the economy, the country lagged far behind many of its Latin American neighbors in per capita terms. In 1925, the year in which Brazil’s per capita figures were at their second highest level, per capita exports reached only half those of Colombia and war-ravaged Mexico, one-sixth of Chile’s, and one-tenth of Argentina’s. Per capita GNP also trailed behind most of these countries.48

As both a result and partial cause of its poverty, the country’s capital markets remained underdeveloped. The banking network was small and conservative. Brazil’s banks (headquarters and branches) per 10,000 people (a criterion established by economic historian Rondo Cameron) stood at a very low .15 in 1930. Deposits were small, on a per capita basis only one-twelfth the United States figure in 1928, while credit was equally limited and short-term.49 The stock market played an even more minimal role in the circulation of capital, providing funds primarily for federal bonds and exchange transactions.50 Informal credit predominated for most of the period. Indeed a significant portion of the population remained outside of the market economy and precapitalist relations obtained in many parts of the country.

In such an underdeveloped economy, the state could hardly hold back and allow the productive forces to develop the economy on their own. During the Republic’s first years, politicians believed that relaxing federal tutelage by facilitating incorporation procedures and allowing private banks to vastly expand the money supply would unleash the economy’s pent-up potential. Instead of prosperity, however, they created the Encilhamento whose heated inflation sparked an explosion of speculation but added little to the country’s productive capacity. It also drove the country’s currency down to less than one-third of its former value.51 Thereafter the ruling class became convinced that the state would have to take a more active part in overseeing the economy and that foreign investment would have to play a fundamental role in development.

The state came to participate extensively in the economy precisely because of its efforts to promote private enterprise. The scarcity of liquid domestic capital demanded that the federal and state governments provide such inducements as profit guarantees, loans, and even stock purchases to encourage domestic and foreign capitalists to invest. These actions ultimately prompted the state to rescue and take over failing companies and to contract foreign loans to cover expenses.

A number of important enterprises came into government hands by default because of earlier favors the state had extended to them. Already during the empire, the central government had constructed and administered the Central do Brasil railroad, one of the most important lines in the country, because the private entrepreneurs who started it with government backing could not carry it through. Under the republic, federal congressmen authorized the purchase of the Sul Mineira railway because the bankrupt company owed the federal government a substantial debt. The same situation provoked the federal take-over of Lloyd Brasileiro.52

Federal and state assistance to private companies as well as direct investments in the transportation and urban infrastructure burdened the state with a tremendous foreign debt because it borrowed abroad to partially finance the profit guarantees and loans it made. The amount owed grew enormously during the First Republic. In 1890, the republic’s debt stood at US $150,000,000. Between 1890 and 1931 the federal, state, and municipal governments contracted an additional US $1,672,000,000. In that period the state paid US $1,770,000,000 in principal and interest, but because of accumulated interest the foreign debt had risen by 1931 to US $1,197,000,000. Brazil had by far the largest foreign debt in all of South America. By 1912, and for the rest of the republic, it owed almost as much as all of its South American neighbors combined.53 On two occasions during the First Republic, 1898 and 1914, the burden of the debt compelled the union to seek a moratorium. Maintaining a good credit rating and forestalling a possible foreign invasion in the event debt repayment was not forthcoming loomed prominently in politicians’ minds throughout the period.54

It was principally concern over the debt that inspired federal officials to regulate banking and acquire most of the country’s railroad network. At the outset of the republic, private banks enjoyed extensive liberty, but financial crises soon provoked interventions. The treasury reasserted its monopoly of currency issue after private banks flooded the market with private issues in the early 1890s and depressed the value of Brazilian currency. Because the currency’s value had to remain relatively high to enable debt repayment and to encourage foreign investment, the union entered the market to maintain the milreis’ value. Eventually the federal government came to employ institutions as well as regulation to protect the currency. The treasury simply could not afford to allow the milreis to be battered by unrestrained and speculative market forces.55

The federal and state governments took control of two-thirds of the country’s rail network by the end of the republic in much the same manner. The profit guarantees that Congress awarded most private railways weighed heavily on the budget since few companies turned a commercial profit. To extricate itself, the federal government borrowed abroad and bought out the lines. It then turned around and leased them out, but now without profit guarantees. Since the interest on the loan was lower than former guarantees, the union both saved money and wound up with ownership of one-quarter of the entire system.56 Similarly, the rest of the rail companies purchased by the union and the states either had consumed excessive public funds or were failing and had no private company willing to take them over.57 The state did not usually nationalize profitable lines, but rather acquired companies only as a last resort when no private entrepreneur could be found or when the action was deemed absolutely necessary for the treasury’s financial integrity or the nation’s defense. State interventions were largely rescue operations, rather than aggressive attempts at planned development. (The active federal expansion of the Central and the Paulista administration of the Sorocabana are exceptions to this rule however.)

The most spectacular instance of state economic activity during the First Republic, the defense of coffee, also constituted a manifestation of liberal principles. The state of São Paulo engaged in the purchase and marketing of excess coffee—the world’s first major attempt at state manipulation of the commodities market—as an extraordinary measure. Paulistas intended valorization to protect their fazendeiros from predatory North American and European importers who were exercising monopoly power to distort the mechanisms of supply and demand and thereby driving down coffee’s price to an unrealistically low level. In other words, the state had to make a temporary adjustment in order to assure that market forces would prevail. Not until 1924 did they come to believe that a permanent defense of coffee would be necessary.58 The altered perception was part of a broader change in the liberal ideology that occurred during World War I.

World War I dealt a profound blow to the Brazilian economy; its repercussions led many members of the ruling class to revise the content of their liberalism. The war effort aroused patriotic fervor while isolation from European markets and producers put the export model into question. For the first time during the First Republic, national defense became the dominant issue. Finding themselves dependent on foreign-produced weapons and basic materials such as steel, coal, cement, and caustic soda, Brazilian politicians resolved to make the country more self-sufficient in these areas.59 Since the war had halted the influx of foreign capital (even prompting the repatriation of much of it) and because native capitalists, dependent in large part on international markets, were financially strapped, the state had to play a leading role. The protection and fostering of basic industries and the transportation infrastructure became an accepted area of state activity even after the battles had ceased. For instance, following the war the state began administering the rail lines it had long owned but had earlier leased out. Interestingly, the decision to increase the state’s economic intervention, which was reached in Brazil as a response to new domestic conditions, mirrored the actions of the European states.60

This coincidental abandonment of orthodox laissez faire did not reflect a slavish imitation by Brazilians of European ideological fashion. Rather, because both Brazilians and Europeans were integrated into the same world economy, they both suffered similar effects from the world war and responded in like fashion. Naturally, the specific concrete manifestations of the modified doctrine in Europe and Brazil differed as much as the economic and social systems of the two. It should be stressed, however, that the state’s expanded role was not generally viewed as a contradiction of liberalism, but simply an elaboration of it. The government still limited its participation to national defense (now more broadly defined) and developing the infrastructure, and, in accordance with the preachings of Smith and Ricardo, sought to expand these areas by encouraging private investment.

Even the nationalism of the First Republic had a liberal content as it was rarely directed against foreign capital. On the infrequent occasions that nationalists did attack foreign capitalists (as in the case of some banks, insurance companies, public utility companies, and railroads), they refrained from xenophobic charges, instead citing monopolistic practices and the failure to import sufficient capital. Most assaults were reserved for Portuguese, German, and Japanese immigrants who allegedly either engaged in monopolistic and speculative commercial practices or failed to Brazilianize and thus constituted a perceived security threat. The other group to bear the brunt of nationalist passions was composed of radical labor leaders who propounded the class struggle and threatened private property. Thus leaders of such nationalist organizations as the Ação Social Nacionalista and the Liga de Defesa Nacional struck out precisely at those who most threatened the functioning of the liberal model.61 And when the federal government nationalized foreign companies such as the railroads, it did so in order to maintain its international credit, not to combat foreign capital. Nonetheless, the Brazilian state was not completely beholden to foreign interests; it did discipline European and North American capitalists. For example, federal and state agencies imposed low railroad freight rates on British and French lines, financed and stored coffee to undercut British, North American, and German exporters’ oligopsonistic power to manipulate prices, and controlled the exchange rate to prevent European banks from currency speculation. The government intervened, however, to correct perceived distortions of market forces in order to assure the proper functioning of the export economy.

Thus the apparent paradox of a liberal interventionist state was not real. Brazil’s ruling class maintained the essence of liberalism, which under existing conditions was in its best interest, but had to sacrifice some of its form in order to preserve the ideology’s basic content. In an underdeveloped country dependent on foreign markets and dominated in considerable part by foreign capital, the political elite had to respond in such a manner. Economic liberalism was to the advantage of the ruling export sector bourgeoisie (planters, merchants, and bankers). Limited state interference and the inviolability of private property encouraged foreign investment and mobilized national capital to build the export infrastructure and finance international commerce. These conditions also facilitated the alienation of public lands and mineral rights, easing the way for the creation of latifundias and mines. Free trade helped open markets abroad and reduced consumption costs of imports for the export oligarchy. Even industrialists and the urban middle class largely supported liberalism because the markets or employment opportunities depended on the outward-oriented development of the export economy. Whether liberalism would maximize the general welfare in the long-run, as some economic historians question, did not much interest the ruling class.62 One cannot decry liberalism as inappropriate on those grounds— it was appropriate for those who made the decisions.

The republicans who wrote the 1891 constitution sincerely wished to remove the impediments to development which they believed that the imperial state had erected. By allowing the free reign of the marketplace, they hoped to exploit the country’s riches. But they were not dogmatically bound to a foreign model and reluctantly allowed frequent concessions to the necessities of an underdeveloped country. Economic reasoning convinced the representatives of the bourgeoisie to employ the state as a tool to guarantee the integrity of the market forces and undertake rescue operations. The state’s actions were not the work of a self-seeking, independent patrimonial bureaucracy despite the clear internal logic and momentum of those actions. Although state interventions were generally ad hoc, haphazard reactions to exogenous forces, there was a qualitative upward trajectory of state participation throughout the First Republic (see Figure 1). An increasingly complex world economy in which the state played a growing role, the developing internal economy, which required more inputs and greater coordination, and the changing profile of foreign investment in it—from principally commercial capital to financial and industrial capital, which made capitalists from abroad more concerned with the Brazilian domestic market—demanded some state intervention. At the same time, the political consolidation of the regime and the native and foreign resources it commanded allowed it to respond vigorously. (The economic and political power of the state reinforced each other.) The politicians of the First Republic insured, however, that the responses remained faithful to liberalism’s underlying principles.

The Brazilian experience with liberalism during the First Republic resembled that of numerous contemporary Latin American regimes. State interventions in such key areas of the export economy as banking, railroads, shipping, and communications as well as exchange operations and international commercial transactions occurred to varying degrees in Argentina, Chile, Colombia, Mexico, and Uruguay well before the Depression under self-professed free traders.63 Since all shared strong ties to the same world economy and were at relatively similar stages of internal development, this coincidence of state policy is not surprising.

The nature of state economic policy during the First Republic and the process of its formation suggest that the Revolution led by Getúlio Vargas in 1930 was more likely the logical culmination of the First Republic rather than a sharp departure from it. Clearly, the state’s economic participation under Vargas was considerably greater than during the First Republic, both quantitatively and qualitatively, but that simply reflected the trajectory of the state’s economic role which was constantly increasing. Vargas’ interventionism probably derived less from the creation of a new ideology or from the ascendancy of a new industrial class—industrialists and planters in Brazil enjoyed a symbiotic relationship—than from the world crisis of the 1930s. After all, the Depression elicited greatly expanded state powers throughout the world. As leaders of a country integrated into the world economy, the freedom of action of Brazilian politicians was seriously circumscribed.

1

For examples, see Glen Dealy, “Prolegomena on the Spanish American Political Tradition,” HAHR, 48 (Feb. 1968), 37–58; Roberto Schwarz, “As Idéias fora do Lugar,” Estudos CEBRAP, 3 (1974) 151–161; Howard J. Wiarda, “Corporativism and Development in the Iberic-Latin World: Persistent Strains and Variations,” The Review of Politics, 36 (Jan. 1974), 3–33. Even authors more sanguine about liberalism’s possibilities in Latin America recognize its failure to achieve its political project. See, for instance, D. A. Brading, “Creole Nationalism and Mexican Liberalism,” Journal of Interamerican Studies and World Affairs, 15 (May 1973), 139–190; José Murilo de Carvalho, “Elite and State Building in Imperial Brazil” (Ph.D. Diss., Stanford University, 1974); Wanderley Guilherme dos Santos, “Liberalism in Brazil, Ideology and Praxis” in Morris J. Blachman and Ronald G. Hellman, eds., Terms of Conflict: Ideology in Latin American Politics (Philadelphia, 1977), pp. 1–38.

2

See Andre Gunder Frank, Lumpenbourgeoisie, Lumpendevelopment (New York, 1974), pp. 63–66; Octavio Ianni, A Formação do Estado Populista na América Latina (Rio de Janeiro, 1975), pp. 68–72; Francisco Weffort, Populismo na Política Brasileira (Rio de Janeiro, 1978), pp. 109–113.

3

For examples of studies that cite 1930 as the dividing point for an activist state, see John W. F. Dulles, “The Contribution of Getúlio Vargas to the Modernization of Brazil” in E. Baklanoff, ed., The Shaping of Modern Brazil (Baton Rouge, 1969), pp. 52–54; Ianni, Estado e Planejamento Econômico no Brasil, 1930–1970 (Rio de Janeiro, 1971), pp. 4, 13, 60; Nelson Werneck Sodré, História da Burguesía Brasileira (Rio de Janeiro, 1976), pp. 274–280.

4

These categories are based on the following studies: Dulles, “The Contribution of Vargas;“ Ianni, Estado e Planejamento; Karl Loewenstein, Brazil under Vargas (New York, 1944); Thomas Skidmore, “Politics and Economic Policy Making in Authoritarian Brazil, 1937–1971” in Alfred Stepan, ed., Authoritarian Brazil (New Haven, 1973); Wilson Suzigan, “As Empresas do Governo e o Papel do Estado na Economia Brasileira” in Fernando Rezende da Silva et al., eds., Aspectos da Participação do Governo na Economia (Rio de Janeiro, 1976).

5

For examples, see Lawrence Graham, Civil Service Reform in Brazil (Austin, 1968), pp. 20–22; Rollie E. Poppino, “The Political Process, 1929–1945” in Jean-Claude García-Zamor, ed., Politics and Administration in Brazil (Washington, D.C., 1978), pp. 84–85; Riordan Roett, Brazil: Politics in a Patrimonial Society (New York, 1978), pp. 35–36.

6

There are several good case studies of the politics of governors. See, for example, Robert M. Levine, Pernambuco in the Brazilian Federation, 1889–1937 (Stanford, 1978); Joseph Love, Rio Grande do Sul and Brazilian Regionalism, 1882–1930 (Stanford, 1971); Love, “Autonomia e Interdependência: São Paulo e a Federação Brasileira, 1889–1937” in Boris Fausto ed., História Gerat da Civilização Brasileira, vol. VIII (São Paulo, 1975); John D. Wirth, Minas Gerais in the Brazilian Federation, 1889–1937 (Stanford, 1977).

7

Adriano Campanhole and Hilton Lobo Campanhole, Todas as Constituições do Brasil (São Paulo, 1971), articles 9, 64, 65, 68, and 72 of the 1891 constitution.

8

Levine, Pernambuco, pp. 73–100; Love, “External Finance and Domestic Politics: The Case of São Paulo, Brazil, 1889–1937” in Robert E. Scott, ed., Latin American Modernization Problems; Case Studies in the Crisis of Change (Urbana, 1973); Wirth, Minas Gerais, pp. 204–224.

9

Brasil, Diretoria Geral de Estatística, Armário Estatístico, 1939/1940 (Rio de Janeiro, 1940), p. 1410; Werner Baer, A Industrialização e o Desenvolvimento Econômico do Brasil (Rio de Janeiro, 1975), pp. 402–403. Real figures were obtained by using the deflator calculated by Cláudio Contador and Claudio Haddad in “Produção Real, Moeda e Preços: A Experiência Brasileira no Período 1861–1970,” Revista Brasileira de Estatística, 36 (July-Sept. 1975), 434–435.

10

Calculated from ibid. According to Phillis Deane and W. A. Cole, British Economic Growth, 1688–1969 (Cambridge, Eng., 1969), p. 333, Great Britain’s national and local government spending constituted 9.9 percent of GNP in 1920 while according to The Statistical History of the United States from Colonial Times to the Present (Stamford, 1969), pp. 141, 711, U.S. federal receipts equaled 6.8 percent of GNP in 1919 and 4.2 percent in 1925.

11

Anuário Estatístico, 1939/1940, p. 1410; Baer, A Industrialização, pp. 402–403. Of course the examination of relative federal and state spending ignores the question of federal control of state policies which was considerably greater under Vargas than before. Nevertheless, even during the First Republic the federal government already greatly influenced the policies of the weaker states. See, for example, Janice Theodore da Silva, Raízes da Ideologia do Planejamento: Nordeste, 1889–1930 (São Paulo, 1978).

12

Anuário Estatístico, 1939/1940, pp. 1424–1425.

13

Brasil, Ministério da Viação e Obras Públicas, Relatório, 1925 (Rio de Janeiro, 1925), pp. 147–155; Brasil, Repartição Geral de Telégrafos, Relatório, 1925 (Rio de Janeiro, 1925), pp. 45–75; Julian Smith Duncan, Public and Private Operations of Railways in Brazil (New York, 1932), p. 87.

14

Anuário Estatístico, 1939/1940, p. 1427; Murilo de Carvalho, “As Forças Armadas na Primeira República: O Poder Desestabilizador” in Fausto, ed., História Geral, IX, 230.

15

Campanhole, Tôdas as Constituições, articles 13; 34, no. 5; 59; 60; 69, no. 4; Leis do Brasil, Lei 434, July 4, 1891; Lei 1841, art. 22, no. VIIIa, Dec. 31, 1907; Decreto 2, 221, art. 18, no. II, Dec. 30, 1909. For an example of the stipulations of a railroad contract, see Brasil Ferro Carril, Sept. 15, 1920, p. 543.

16

One of the best studies of the political system is Love, Rio Grande do Sul. Other valuable studies include Levine, Pernambuco; David V. Fleischer, “Political Recruitment in the State of Minas Gerais, Brazil, 1890–1970” (Ph.D. Diss., University of Florida, 1972); Edgard Carone, A República Velha: Instituições e Classes Sociais (São Paulo, 1970); Maria do Carmo Campello de Souza, “O Processo Político-Partidário na Primeira República” in Carlos Guilherme Mota, ed., Brasil em Perspectiva (São Paulo, 1970); Wirth, Minas Gerais.

17

For more on the defense of coffee, see Brasil, Congresso Nacional, Documentos Parlamentares, Valorização do Café (Rio de Janeiro, 1915); Fausto, “Expansão do Café e Política Cafeeira” in Fausto, ed., História Geral, VIII; Thomas Holloway, The Brazilian Coffee Valorization of 1906 (Madison, 1971); Carlos Manuel Peláez, “Análise Econômico do Programa Brasileiro de Sustentação do Café, 1906–1945,” Revista Brasileira de Economia, 25 (Oct.-Dec. 1971), 5–212; Steven Topik, “Economic Nationalism and the State in an Underdeveloped Country: Brazil, 1889–1930” (Ph.D. Diss., University of Texas, 1978), pp. 108–152.

18

Anuário Estetístico, 1939/1940, pp. 1294–1295, 1320, 1350, 1356, 1413–1415, 1420, 1427. Although a substantial part of the Federal District’s prosperity resulted from the federal government’s redistribution of funds collected in the states to the capital, Rio was not simply a political parasite. Its role as commercial entrepot and industrial center was largely independent of its political role.

19

Brasil, Congresso, Leis do Brasil, Decree 183c, Sept. 23, 1893, Decree 14,605, Jan. 5, 1921, Decree 13,110, July 19, 1918; Brasil, Presidente, Mensagem Dirigida ao Congresso Nacional, May 3, 1919, (Rio de Janeiro, 1919), p. 8; Brasil, Congresso, Documentos Parlamentares, A Caixa de Conversão (Paris, 1914).

20

Banco do Brasil, Relatório Apresentado á Assemblea Geral dos Acionistas, 1921 (Rio de Janeiro, 1921), pp. 9–11; Relatório, 1924, pp. 136–140; Relatório, 1928, p. 6.

21

Brasil, Presidente, Mensagem, May 3, 1901, p. 28; Presidente, Mensagem, May 3, 1929, p. 58; Brasil Ferro Carril, Aug. 31, 1920, p. 515; Sept. 15, 1920, p. 543; Duncan, Public and Private Railways, p. 87; O Estado de São Paulo, Apr. 18, 1920, p. 10, and Apr. 26, 1920, p. 8; A Federação (Porto Alegre), Feb. 18, 1920, p. 1. For a case study of the impact of the railroad, see Robert IF Mattoon, Jr., “Railroads, Coffee and the Growth of Big Business in São Paulo, Brazil,” HAHR, 57 (May 1977), 273–296.

22

Leis do Brasil, Decree 123, Nov. 11, 1892, Law 2,304, July 2, 1896, Decree 478, Dec. 9, 1897.

23

John Timothy Wholihan, “An Analysis of the Development of Selected Utility Services in Brazil” (Ph.D. Diss., American University, 1973), p. 78.

24

Leis do Brasil, Decree 123, Nov. 11, 1892; Decree 2,924, Jan. 5, 1917; Decree 3,296, July 10, 1917; Decree 3,991, art. 28, no. XIII, Jan. 5, 1920; Decree 14,728, Apr. 16, 1921; personal interview, Octávio Brandão, Rio de Janeiro, June 11, 1979. For more on labor repression, see Brandão, Combates e Batalhas (São Paulo, 1978); Everardo Dias, História das Lutas Sociais no Brasil (São Paulo, 1962).

25

Brasil, Congresso Nacional, Anais da Câmara dos Deputados, 1892, II, 7,464; 1892, VI, 88; Leis do Brasil, Decree 14,027, Jan. 21, 1920; Decree 17,559, Dec. 13, 1926; Presidente, Mensagem, May 3, 1919, p. 131. Also see Maria Yedda Leite Linhares, História do Abastecimento: Uma Problemática em Questão, 1530–1918 (Rio de Janeiro, 1978), pp. 258–267; Linhares and Francisco Carlos Teixeira da Silva, História Política do Abastecimento, 1918–1974 (Rio de Janeiro, 1979), pp. 43–54.

26

Anuário Estatístico, 1939/1940, p. 1423; Brasil, Ministério da Fazenda, Relatório, 1926 (Rio de Janeiro, 1926), pp. 79–85; Wileman’s Brazilian Review, Aug. 1, 1929, p. 819.

27

Brazilian Review, Aug. 6, 1901, p. 567; Nov. 12, 1901, p. 1073; Sept. 17, 1907, p. 1073; Monitor Mercantil, Jan. 20, 1918, p. 98; Comércio e Indústria, July 1919, p. 245; Duncan, Public and Private Railways, pp. 35–37.

28

Anuário Estatístico, 1939/1940, p. 1339.

29

For some examples, see Ministério da Fazenda, Relatório, 1898 (Rio de Janeiro, 1898), p. 71; Congresso, Documentos Parlamentares, Política Econômica: Defesa da Borracha, 1906–1914 (Rio de Janeiro, 1915), pp. 599–623; Leis do Brasil, Decree 3,991, art. 28, no. II, Jan. 5, 1920, Decree 4,241, Jan. 5, 1921.

30

Comissão dos Estados Econômicos e Financeiros, A Defesa do Café (Rio de Janeiro, 1935), pp. 11–12, 15.

31

Calculated from Anuário Estatístico, 1939/1940, p. 1410.

32

Banco do Brasil, Relatório, 1924, n. p., appendix; Jornal do Comércio, Retrospectiva Comercial, 1924 (Rio de Janeiro, 1925), p. 118; Baer, A Industrialização do Brasil, p. 262.

33

Leis do Brasil, Decree 183c, Sept. 23, 1893, Decree 1,976, Feb. 25, 1895, Law 1,841, art. 33 Vb, Decree 2,986, art. IV, VII, 5, Aug. 28, 1915, Decree 3,316, art. Ia, IX, Aug. 16, 1917, Law 12,943, Mar. 30, 1918; Presidente, Mensagem, May 3, 1915, p. 7; Mensagem, May 3, 1922, p. 107; Joño Pires do Rio, “Relatório” in Brasil, Congresso, Diário Oficial, Supplemento 9, Sept. 9, 1928, pp. 41, 50, 85; Arthur H. Redfield, Brazil: A Study of Economic Conditions since 1913 (Washington, D.C., 1920), p. 73.

34

Leis do Brasil, Decree 2,356, art. 71, Dec. 31, 1910, Decree 8,019, May 19, 1910, Decree 12,943, Mar. 30, 1918, Decree 4,801, Jan. 9, 1924, Decree 4,793, Jan. 7, 1924, Decree 17,470, Oct. 6, 1926; Ministério da Fazenda, Relatório, 1918, p. viii; Diário Oficial, Supplemento, Sept. 9, 1928.

35

Alfredo R. Costa, O Rio Gronda do Sul, 1822–1922 (Porto Alegre, 1922), p. 35; Leis do Brasil, Law 1,841, art. 22a, Dec. 31, 1907, Decree 3,991, art. 28, no. XVI, Jan. 5, 1920.

36

Leis do Brasil, Decree 2,986, Aug. 28, 1915; Stanley Stein, The Brazilian Cotton Manufacture: Textile Enterprise in an Underdeveloped Area, 1850–1950 (Cambridge, Mass., 1957), p. 192.

37

U.S. Federal Trade Commission, Report on Trade & Tariffs in Brazil, Uruguay, Argentina, Chile, Bolivia, and Peru (Washington, D C., 1916), p. 62; Ministério da Fazenda, Relatório, 1893, p. 123; Centro Industrial do Brasil, Relatório, 1912, p. 31; Nícea Villela Luz, A Luta pela Industrialização do Brasil (São Paulo, 1975), pp. 165–205; Stein, Cotton Manufacture, pp. 80–82.

38

Brasil, Inspectoria Federal das Estradas, Estatísticas das Estradas de Ferro do Brasil, 1930–1931 (Rio, n.d.); Duncan, Public and Private Railways, p. 87; F. E. Lawley, The Growth of the Collective Economy (London, 1938), p. 111.

39

Brasil, Repartição Geral de Telégrafos, Relatório, 1925 (Rio de Janeiro, 1925), pp. 45, 75; Instituto de Expansão Comercial, O Brasil Atual: Forças Econômicas (Rio de Janeiro, 1930), p. 54.

40

Brasil, Inspectoria Federal de Portos, Rios e Canais, Relatório, 1928 (Rio de Janeiro, 1930), n. p., appendix; Ministério da Fazenda, Relatório, 1926, p. 317; Ministério da Viação e Obras Públicas, Relatório, 1925, pp. 166–176.

41

Banco do Brasil, Relatório, 1931, n. p., appendix; Anuário Estatístico, 1939/1940, pp. 1389–1390; Departamento Nacional de Estatística, Movimento Bancário, 1931 (Rio de Janeiro, 1931).

42

Brasil, Departamento Geral de Estatística, Recenseamento do Brasil, 1920, vol. V, part 2 (Rio de Janeiro, 1922), pp. iv-xiv; Wileman’s Brazilian Review, Jan. 15, 1918, p. 51, Aug. 9, 1928, p. 1017, June 26, 1930, p. 860.

43

For this interpretation, see Raimundo Faoro, Os Donos do Poder: Formação do Patronato Político Brasileiro (São Paulo, 1975); and Vamireh Chacon, “State Capitalism and Bureaucracy in Brazil,” paper presented at the seventh meeting of the Latin American Studies Association, Houston, 1977; Simon Schwartzman, São Paulo e o Estado Nacional (São Paulo, 1975).

44

Carone, A República Velha, pp. 154–155; Levine, Pernambuco, pp. 124–140; Love, Rio Grande do Sul, pp. 11, 31–38; Wirth, Minas Gerais, pp. 118–123, 138.

45

For a list of the sources consulted, see Topik, “Economic Nationalism and the State.”

46

W. Ashworth, A Short History of the International Economy, 1850–1950 (London 1952), pp. 130–137.

47

Paul Leroy-Beaulieu, Traité de la science des finances (Paris, 1906), pp. v-xv; Adam Smith, The Wealth of Nations, (London, 1910), II, 180–181. For a concise treatment of Smith’s view of the state, see Andrew S. Skinner, Adam Smith and the Role of the State (Glasgow, 1974).

48

Comisión Económica para América Latina, Análisis y proyecciones del desarrollo económico III: El desarrollo económico de Colombia (México, 1957), p. 248; Anuario Estatístico, 1939/1940, pp. 1293, 1359.

49

Anuario Estatístico, 1939/1940, p. 1356; Jornal do Comércio, Retrospectivo Comercial, 1930, p. 217; United States, Department of Commerce, The Statistical History of the United States (Stamford, 1965), pp. 7, 640; Rondo Cameron, Banking in the Early Stages of Industrialization (New York, 1967), pp. 20-24.

50

Câmara Sindical dos Corretores de Fundos Públicos da Capital Federal, Relatório, 1929-1930, p. 63. See also Maria Barbara Levy, Historia da Bolsa de Valores do Rio de Janeiro (Rio de Janeiro, 1977), p. 375.

51

For more on the Encilhamento, see Levy, Historia da Bolsa, pp. 141-183; J. P. Wileman, Brazilian Exchange: The Study of Inconvertible Currency (1891, reprinted, New York, 1969).

52

Duncan, Private and Public Railways, pp. 35-40; Joáo Pandía Calógeras, A Política Monetaria do Brasil (Sao Paulo, 1969), p. 404; Monitor Mercantil, Jan. 20, 1918, p. 98; Hélio Lobo, Lloyd Brasileiro: Urna Lifáo que Fica (Rio de Janeiro, 1954), pp. 5-11.

53

Annibal Villela and Wilson Suzigan, A Política do Governo e Crescimento Económico no Brasil, 1889-1945 (Rio de Janeiro, 1973), p. 333. Jornal do Comercio, Retrospectivo Comercial, 1929, p. 206.

54

President Manoel Ferraz de Campos Sales reported that while he was negotiating the 1898 Funding Loan the Rothschilds threatened foreign intervention if Brazil suspended its debt repayment. Da Propaganda a Presidencia (Sao Paulo, 1908), p. 186.

55

For more on this, see Paulo Neuhaus, História Monetária do Brasil, 1900-1945 (Rio de Janeiro, 1975).

56

Duncan, Public and Private Railways, p. 52.

57

I found only one example of the nationalization of a profitable company because it provided poor service—the São Paulo Northern. O Estado de São Paulo, Apr. 18, 1920, p. 10, and Apr. 26, 1920, p. 8.

58

See footnote 17.

59

President Arthur Bernardes argued in his Mensagem of May 3, 1926, p. 33, that while in general the country should follow the laws of comparative advantage, “there is an exception to this principle relative to industries basic to the national security and defense: in these cases, the cost of production is considered secondary.”

60

See Lawley, The Growth of the Collective Economy.

61

For more on nationalist groups, see Topik, “Middle-Class Brazilian Nationalism, 1889-1930: From Radicalism to Reaction,” Social Science Quarterly, 59 (June 1978), 93-104.

62

An example of this approach is William Paul McGreevey, An Economic History of Colombia, 1845-1930 (Cambridge, Eng., 1971).

63

For an overview of the state’s historic role in Latin America, see William P. Glade, The Latin American Economies: A Study of Their Institutional Evolution (New York, 1969). Other sources of the economic role of the liberal state include Virgil M. Bett, Central Banking in Mexico: Monetary Policies and Financial Crises, 1864-1940 (Ann Arbor, 1964); Daniel Cosío Villegas, Historia moderna de México—El porfiriato: Vida económica, vol. VII (México, 1965); Economic Commission for Latin America, El desarrollo económico de Colombia (México, 1957); Roger Gravil, “La intervención estatal en el comercio de exportación entre las dos guerras,” Desarrollo Económico, 10 (Jan.-Mar. 1971), 395-428; Marcos Kaplan, “Política del petróleo en la primera presidencia de Hipólito Yrigoyen,” Desarrollo Económico, 12 (Apr.-June 1972), 3-24; A. Labarca Hubertson, ed., Desarrollo de Chile en la primera mitad del siglo XX (Santiago, 1951); John H. McNeely, The Railways of Mexico (El Paso, 1964); Milciades Peña, La clase dirigente argentina frente al imperialismo seguido de orígenes y resultado de la nacionalización de los ferrocarriles (Buenos Aires, 1973); Felipe Vázquez Varim, Formación económica del Uruguay (Montevideo, 1970); Winthrop Wright, British-Owned Railways in Argentina (Austin, 1974).

Author notes

*

The author is Visiting Professor at the Universidade Federal Fluminense, Niterói, Rio de Janeiro, Brazil. He would like to thank Philip Evanson, Richard Graham, Robert Levine, Joseph Love, Nancy Naro, and Thomas Skidmore for their helpful comments.