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The Financial Crisis of Abolition

The Financial Crisis of Abolition

John Schulz
Copyright Date: 2008
Published by: Yale University Press
Pages: 208
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  • Book Info
    The Financial Crisis of Abolition
    Book Description:

    From 1850 to 1914, Brazil enjoyed a long period of political and financial stability that was interrupted just once. During this rupture, 1889-1894, the country suffered two successful coups-d'etat, military government, civil war, and a disastrous decline in the value of the national currency. The five years of disorder and crisis came in the wake of the nation's abolition of slavery and related financial repercussions.

    This book examines Brazil's crisis years, for the first time setting post-slavery financial decisions within their international and local historical contexts. Arguing against the "European dependency" interpretation of Brazil's history, John Schulz explains how planters' demands for easy credit after abolition were met with shortsighted economic policies. The failure of the expansionary monetary policy of the 1890s not only illuminates Brazil's history, it also suggests lessons relevant to financial and political decisions being made today.

    eISBN: 978-0-300-15049-0
    Subjects: History

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface to the English Edition
    (pp. vii-x)
  4. Preface
    (pp. xi-xiv)
  5. Chapter 1 Interests of the Elite
    (pp. 1-13)

    From 1850 to 1914, Brazil enjoyed both a civilian, legitimate—albeit unrepresentative—political regime and a reasonably stable monetary system, except for one period, from 1889 to 1894. Within these five years, the country suffered two successful coups d’état, military government, and civil war, and the national currency fell from its parity against sterling to one third of this value. World market factors beyond Brazil’s control cannot be blamed for these disturbances as coffee prices attained their cyclical highs. Internal problems rather than external shocks caused abrupt alterations in political and financial affairs. The abolition of slavery and its accompanying...

  6. Chapter 2 The International Financial System
    (pp. 14-25)

    The Brazilian elite, including its members who did not depend directly on agricultural exports, believed that exports provided the only means to wealth, both private and public. The governments of the Brazilian Empire depended upon tariffs for the greater part of their income, and in turn utilized much of this income to foster “improvements” that facilitated international trade. Trade required credit to expand. By the middle of the nineteenth century, foreign credit had become available to finance both overseas commerce itself and projects, especially railroads, necessary to promote exports. For the Brazilian elite, the international system of credit presented major...

  7. Chapter 3 Credit and Crises, 1850 to 1875
    (pp. 26-44)

    The world economy suffered a number of crises during the nineteenth century. All these crises originated in a cyclical overextension of credit. In addition to banknotes, credit could be generated by banks lending their deposits and by merchants selling goods on terms. In the case of Brazil, a good deal of credit came from foreign companies that allowed payment on terms of up to one year on imports. As optimism increased, bankers and merchants extended ever more credit for ever longer periods to ever less creditworthy borrowers and customers. Success in boom years made, and still makes, bankers and merchants...

  8. Chapter 4 Coffee Planters
    (pp. 45-54)

    Planters, especially coffee planters, dominated the Brazilian Empire, but this hegemony did not make for uniform financial policies. Within the planter class, different groups had conflicting views regarding which measures best served their interests. Moreover, the planters shared power with various other elements of the elite, including politicians, public officials, merchants, and financiers, whose objectives did not always coincide with those of the agrarian sector. The wealthier planters, many of whom sustained losses from the bankruptcies of 1864 and 1875, worried about the security of their financial assets. Less prosperous farmers perceived the financial system primarily as a club from...

  9. Chapter 5 Abolition
    (pp. 55-70)

    A decade before abolition, the coffee planters could imagine neither agriculture without coercion nor a solution to their problems that did not call for large government spending. With honorable exceptions, the planters refused to use local labor and demanded European or Oriental workers. Planters convinced themselves that slaves, once freed of the lash, would not work. The landowners wanted the state to pay for the immigrant workers’ passage and then force them to labor long hours at the lowest possible wages. The planters also wanted the state to guarantee the foreign borrowings of rural credit banks; if, as experience suggested,...

  10. Chapter 6 The Encilhamento
    (pp. 71-97)

    The extended ministerial crisis and the unprecedented failure of four leaders to form a government seemed to persuade many members of the elite that the Brazilian Empire had become politically bankrupt. Prime Minister Ouro Preto received a rather unfriendly reception in the Chamber of Deputies when he presented his program in early June of 1889. Two deputies turned openly republican and shouted, “Down with the monarchy!” to Ouro Preto’s face. Although the prime minister handled himself well, the volume of shouting indicated that only half the members of the imperial Chamber of Deputies still defended the monarchy.¹ The Conservative majority...

  11. Chapter 7 Orthodox Reaction: The Unsuccessful Phases
    (pp. 98-116)

    Vice President Floriano Peixoto’s accession to the presidency in November 1891 marked the beginning of an orthodox reaction in monetary policy (throughout his presidency Floriano insisted on using the title of vice president). Issuing banknotes ceased; the exchange rate leveled off after two years of decline; and the stock market was allowed to fall to its real value. However, Brazil suffered for another ten years before true monetary stability could be achieved. Floriano missed the opportunity to contain the money supply because he became involved in an expensive and probably unnecessary civil war. An external shock, the fall of coffee...

  12. Chapter 8 Stabilization
    (pp. 117-131)

    Between Campos Sales’s election and his inauguration, it became clear that Brazil lacked the foreign exchange to pay the interest on its external debt. Since the Rothschilds had become the country’s principal bankers in 1855, Brazil had never missed an interest payment.¹ In November 1897, with the bond market closed to Brazil and secondary prices highly depressed, Prudente negotiated a £2 million two-year credit from the Rothschilds, largely to meet immediate interest requirements.² As the Spanish-American War began, Prudente’s government took advantage of the opportunity to sell off a completed warship and another one still under construction. The Rothschilds conducted...

  13. Chapter 9 Reflections on Inflation
    (pp. 132-136)

    With the exception of the brief ministry of Bernardo de Souza Franco (1857–1858), the imperial elite had invariably followed conservative doctrine and policies regarding credit. The gold standard served as an objective for all the succeeding governments, although in practice the empire never adopted full convertibility. This conservative thinking did not, however, inhibit decisive action during periods of adversity. In particular, during the commercial crises of 1857, 1864, and 1875, the Paraguayan War, and the great drought of 1878, the government acted both rapidly and vigorously to increase the volume of paper money and banknotes in circulation.

    With the...

  14. Appendix: Public Finance in Brazil
    (pp. 137-150)
  15. Notes
    (pp. 151-171)
  16. Glossary
    (pp. 172-174)
  17. Bibliography
    (pp. 175-180)
  18. Index
    (pp. 181-193)