The Revolution brought an end to the Profirian economic boom. The 2.6 percent average economic growth rate that Mexico enjoyed between 1901 and 1910 would not be achieved again until after 1936. Economist Raymond Vernon calculated that as a result of the Revolution, economic development was retarded by a decade.3
The departure of Diaz did not immediately result in economic decline. U. S. tourist investors continued to appear in Mexico and to be met by interim President Leon de la Barra and then by Madero, just as they had been met by Diaz.4
However, as security conditions deteriorated, a decline in new investment halted economic growth. Long-term investment was discouraged by the very real possibility that assets would be destroyed and by the inability to predict future markets and government policy. Beginning in 1912, many U. S. investors curtailed and, if possible, repatriated their investments in railroads, mining, land, and utilities. By 1914, only the oil industry was attracting new investment, and Canada had surpassed Mexico as the largest recipient of U. S. direct foreign investment.5
Destruction of productive assets was widespread. Armed bands frequently sacked haciendas. This description of Ciudad Juarez reflected conditions in countless locations from Chihuahua to Morelos:
At every turn you come upon ruins—Chouses riddled with bullet holes or breached with shot and shell; a public library razed to the ground, a mere heap of stones; a post office badly damaged; and, opposite the Juarez monument, a brick building, roofless, with gaping windows and walls. . .6
As a result of the Revolution, rail service was severely curtailed. To prevent the advance of opposing troops, bridges were destroyed, rails bent, and ties burned. Between 1910 and 1914, the Mexico North Western Railway alone reported 850 bridges burned. All factions seized rolling stock, which was diverted from passenger and freight service to military uses. Shipping costs soared as security needs meant that scout trains had to be sent out, soldiers and armored cars had to be placed on runs, schedules and routes had to be varied, night shipments had to be canceled, and guardhouses had to be maintained along the most vulnerable sections. Carrancista military officers who controlled rail shipments demanded payments, which they pocketed, to free rolling stock for transporting non-military goods. In the fall of 1915, businessmen were paying as much as 3,000 pesos in bribes per freight car or locomotive. Given the interruption of fuel supplies, locomotives were converted to use wood as a fuel. To meet immediate fuel needs, stations were sometimes dismantled and burned as fuel. The decline in rail service allowed the mule and the donkey to stage a comeback and hastened the introduction of truck transport.7
The collapse of rail service seriously affected mining. Mines relied on railroads to remove ore and obtain supplies and fuel for their on-site electrical power plants. Some smelters closed due to fuel shortages. As a result of U. S.-imposed embargoes, miners were sometimes unable to purchase dynamite from the United States. As the rule of law receded, revolutionaries and bandits would plunder mine installations. To prevent theft by bandits, who almost invariably arrived by horse, silver was sometimes cast in 400-pound ingots. Revolutionaries, who knew that large mines had access to company funds from the United States, would levy special war taxes. Given the prevailing turmoil, skilled laborers abandoned isolated, vulnerable mine sites. By the beginning of 1914, an estimated 80 percent of the Americans in Mexico had left the country.8
Villa did his best to persuade mine owners to continue operations, since mines provided employment and could be taxed. He even prevented members of the militant Industrial Workers of the World (commonly known as IWW or “wobblies”) from entering Mexico to organize miners. In February 1915, mine managers in Chihuahua reported that Villa “wanted us to do our very best in the way of working our mills and railroads and that if we required any more help. . . to come and see him.”9
Of the 110 American mining companies in Mexico, only fourteen worked steadily from 1914 to 1919. In 1915 and 1916, the American Smelting and Refining Company declared no earnings in Mexico, the number of its employees declined from 12,000 to 6,000, and its production declined by 75 percent. Between 1914 and 1916, innumerable small mining firms suffered bankruptcy. In a three-year period, 1912 to 1915, silver production declined from 2,526,715 kilograms to 712,599. The mining sector recovered slowly from the effects of the Revolution. As late as 1921, mine output remained 40 percent below the 1910 level.10
Agriculture also suffered a prolonged decrease in production. Buildings were destroyed, and hacendados and managers fled, leaving workers without supervision, capital, or tools. So many workers left rural areas to participate in the insurrection that harvests were jeopardized. Cattle were stolen or seized by revolutionary armies to be used as a food source or to be sold in the United States to raise money for arms purchases. The seizure of crops by revolutionary armies discouraged planting. After the land-owning elite fled, Patrick O’Hea, the British vice-consul in Torreon, wrote, “The organization necessary in many cases in this republic for successful agriculture, particularly in regard to irrigation, has been destroyed and production under the changed conditions has been very much reduced.”11
Between 1910 and 1915, the volume of agricultural production fell by 24 percent. Between 1910 and 1921, the number of cattle in Chihuahua declined from roughly 1.2 million to 60,000.12
Various trends—none planned—could be observed in the agricultural sector. In August 1915, as the national transportation system ceased to function, price disparities for corn reached levels of ten-to-one from one region to another. The rural share of national income declined considerably.
While many haciendas were ravished, agriculture in the northwest boomed, since its rail links to the United States remained intact. Despite Carranza’s proclaimed agrarian reform, land holdings became increasingly concentrated. Between 1910 and 1921, estates of 1,000 hectares (2,470 acres) or more increased their share of privately held land from 71.8 percent to 77.9 percent.13
Few factories and cotton mills were destroyed during the Revolution, since most were located in Monterrey, Mexico City, and the Veracruz—Puebla corridor—areas that saw little combat. All factions considered factories as economic assets to be taxed and thus spared them from attack. In Puebla, mill hands joined their employers to protect their workplaces (and jobs) from attacks by anti-regime elements. Factory production plummeted, though, as rail service declined, making it difficult to market goods or obtain spare parts and raw materials. Monetary collapse provided a further impediment to sustained industrial production. In 1912, 126 cotton textile mills were in operation, but by 1915, only eighty-four were.14
The lack of a stable currency added to Mexico’s economic woes. To finance his struggle against the Constitutionalists, Huerta forced banks to lend to his administration. To facilitate the massive loans required, the banks’ reserve requirements were lowered, thus undermining the credibility of paper currency. As holders of paper currency increasingly turned in bank notes for gold and silver coins, Huerta allowed banks to refuse to convert paper currency to coins. Monetary confusion reigned as Huerta’s opponents, military chiefs, and banks each emitted their own paper money.15
In 1914, Huerta suspended payment on Mexico’s foreign debt. Creditors called for military intervention to force payment. Having learned their lesson in the 1860s, none of the major powers was willing to rescue the lenders. This suspension of payments caused foreign lenders to deny Mexico credits until 1942.16
To finance their war efforts, both Villa and Carranza turned to the printing press. Since victors were expected to repudiate the currency of the vanquished, sellers had to make political judgments as to which currency they would accept and at what rate of discount. The paymaster at El Cubo mine in Guanajuato offered miners the choice of receiving their salaries in Villista currency or Carrancista currency. Given the decline in Villa’s military fortunes, by the fall of 1915,
20,000 Villista pesos would not buy a tortilla in the Laguna. Since much of the printing was of poor quality, counterfeiters could produce currency that looked as good as, if not better than, the real thing.17
By mid-1915, the Constitutionalists had printed 672 million pesos, compared to the 193.2 million pesos that were in circulation in 1910. In keeping with Gresham’s Law, the proliferation of paper currency drove silver coins out of circulation. A 1916 government decree referred to twenty-one types of paper money, all of them legal tender. During that year, as a result of runaway inflation, the peso—dollar exchange rate shifted from 22.72 to 1 to 217.39 to 1. The Constitutionalists even began to demand partial payment of taxes, not in their own currency, but in gold. There was widespread reversion to a barter economy, except in export enclaves and border areas where foreign currency circulated.18
The lack of a stable currency caused producers to stockpile goods rather than selling them for increasingly depreciated currency. It also disrupted the government’s ability to collect taxes and led to massive capital flight. The lack of any acceptable means of payment even prevented many from boarding Mexico City streetcars. Labor’s already precarious share of national income declined as wages failed to keep up with inflation.19
Two factors led to the reestablishment of a stable currency. In 1916, with victory in hand, the Constitutionalists began the massive minting of gold and silver coins. Also, in a reversal of Gresham’s Law, as paper currency (“bad money”) fell to near zero value, hoarded coins (“good money”) went back into circulation to provide a medium of exchange, bypassing the official currency. This shift occurred within a matter of days, and paper money would not circulate again in large amounts until the end of 1931.20
World History
