Abstract
Brazil’s macroeconomic instability in the three years following the return to peace as well as the difficult economic policy problems she faced until the mid-twenties have their roots in the violent worldwide postwar economic fluctuations and the ‘trail of devastation’ which, in the words of the late Professor Joslin, it left throughout Latin America.1
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Notes and References
D. Joslin, A Century of Banking in Latin America (Oxford University Press, 1963) p. 217.
D. Aldcroft, From Versailles to Wall Street, 1919–1932 (Allen Lane, London, 1977) pp. 64 ff.
W.A. Lewis, Economic Survey, 1919–1939 (Allen and Unwin, London, 1949) p. 18.
See, for instance, J.A. Dowie, ‘1919–1920 is in Need of Attention’, Economic History Review, (August, 1975).
Cf. League of Nations, Economic Fluctuations in the United States and the United Kingdom, 1918–1922, (Geneva, 1942) passim, D.H. Aldcroft, Versailles to Wall Street, pp. 65–7, and W.A. Lewis, Economic Survey, p. 19.
Cf. League of Nations, Economic fluctuations, U.S. and U.K., pp. 13–19,
D.H. Aldcroft, Versailles to Wall Street, p. 66 and
S. Howson, ‘The Origins of Dear Money 1919–1920’, Economic History Review, xxcii (February 1974) pp. 88 ff.
See League of Nations, Economic Fluctuations, U.S. and U.K., pp. 18–19.
See Table A.6. This was due almost exclusively to the recent growth of planting in Colombia.
Total output rose by 5.9 per cent and industrial output by 14.8 per cent in 1919. See Table A.2.
BBR, 1919, pp. 14 ff.
Between March 1919 and March 1920 there was a 40 per cent appreciation against sterling and 160 per cent against the French franc. Cf. Federal Reserve Bulletin (August, 1920) p. 817.
BBR, 1921, p. 6. During the postwar import boom, the United States — which supplied between 12 to 15 per cent of Brazilian imports before the war — still maintained the leading position attained during the European conflict supplying over 47 per cent of total Brazilian imports in 1919. After 1919, the American share fell rapidly, stabilising between 20 to 30 per cent in the mid-twenties, while Britain’s and to a minor extent, Germany’s share rose.
See Table A.16.
See, for instance, BBR, 1917, p. 19–24 and BBR, 1918, pp. 96 ff.
Jornal do Commércio, 29.5.1917.
P. Neuhaus, Monetary History of Brazil, pp. 54 ff.
A.C. Ribeiro de Andrade, Bancos de Emissão no Brasil (Liv. Leite Ribeiro, Rio de Janeiro, 1923) p. 363. This version is confirmed by Homero Batista himself. In the last Banco do Brasil board meeting he presided he made a farewell address almost exclusively centered on his attempts to transform the Bank into an ‘issue and rediscount Bank’ and on the lack of support he found in the Executive. See BBBM, meeting of 3.1.1919.
Cf. BBR, 1918, pp. 104 ff.
In his A Reforma Monetária, he had stated: ‘Among fiduciary issues I prefer the banking type; but I do not consider it to be indispensible for its good quality that it should correspond always to an equal metallic backing in the vaults of the issuing Banks as sustained by the bullionists … The essential condition of the good fiduciary currency is the limitation of its quantity to the real needs of circulation.’ Cf. A.
Cavalcanti, A Reforma Monetária (Imprensa Nacional, Rio de Janeiro, 1891) p. 37.
Cf. MFR, 1919 pp. v and xxiii.
J.M. Bello, Brazil, 1889–1964, pp. 242 ff.
See BBR, 1920, p. 8. See also Tables, A.3, A.16 and A.17.
BBR , 1920, p. 8. See also V. Viana, O Banco do Brasil, pp. 805–6.
BBR, 1920, p. 8.
MFR, 1920 pp. 289–90.
C. Pacheco, História do Banco do Brasil, p. 169. The works of the Committee are printed in MFR, 1920, pp. 291 ff.
D.H. Aldcroft, Versailles to Wall Street, pp. 67–8.
League of Nations, Economic Fluctuations, U.S. and U.K., pp. 8 and 19–20.
See also M. Friedman, and J. Schwartz, A Monetary History of the United States, 1867–1960 (N.B.E.R. Studies in Business Cycles no. 12, Princeton Univ. Press, 1963) pp. 231–5 and
S. Howson, Domestic Monetary Management in Britain, 1919–1938 (University of Cambridge, Department of Applied Economics Occasional Paper 48, Cambridge Univ. Press, 1975) pp. 23–6.
See Table A.4. and A.8.
J.W.F. Rowe, ‘Brazilian Coffee’, p. 22.
See A. Delfim Netto, O Problema do Café, pp. 100–101.
J.W.F. Rowe, ‘Brazilian Coffee’, p. 22.
BBR, 1921, p. 6. Another important inducement to the growth of imports may have been the erosion of the protective effect of the Brazilian tariff during the war, when the adjustments then made in the specific milréis rates through increases in the gold tariff quota did not offset the joint effects of world inflation and postwar exchange rate appreciation. The relation between tariff revenue and the value of imports, although probably also reflecting a change in the commodity composition of imports, fell from an average of 39 per cent in 1910–12 to 16 per cent in 1919. Data from Tables A.11 and A.13.
Cf. A. d’E. Taunay, Pequena história do café, p. 268.
W.L. Schurz, Valorization of Brazilian Coffee, Supplement to Commerce Reports, Trade Information Bulletin no. 73, October 16, 1922, United States Bureau of Foreign and Domestic Commerce (U.S. G.P.O., Washington, 1922) p. 2.
SAJ, 25.9.1920 and 9.10.1920. See also MFR, 1920, pp. 118–35.
Brazil. Câmara dos Deputados, Documentos Parlamentares: Meio Circulante, vol. 12 (Typ. do Jornal do Commércio, Rio de Janeiro, 1922) pp. 3–11 and 61–92.
As late as December 1920 the Minister of Finance answered a written request for federal support to coffee markets from the Rio Commercial Association stating that although the government ‘sees with deep feelings the fall in prices of several Brazilian products, it would be senseless to throw itself into the task of supporting them in world markets through commercial operations.’ Letter of H. Batista to the President of the Rio Commercial Association, 7.12.1920, in MFR, 1920, pp. 183–95.
Morgan to Secretary of State, 20.9.1920, in USNA RG-59 832.00/198.
See Table A.16.
RC-JC, 1920, p. 3.
Private sector complaints for an easing of credit conditions had been mounting for some time and even pressures for a moratorium had already begun. See Morgan to Secretary of State, 13.11.1921, in USNA RG-59 832.51/217 and SAJ, 25.12.1920.
SAJ, 16.10.1920.
See Law no. 4.182 of 13.11.1920. For the rationale of the proposed amendment see MFR, 1920, pp. 135 ff.
Ibid. See also SAJ, 9.10.1920.
J.W.F. Rowe, ‘Brazilian Coffee’, p. 40.
W.G. McCreery and M.L. Bynum, ‘The Coffee Industry in Brazil’, U.S. Department of Commerce, Trade Promotion Series no. 92 (USGPO, Washington, 1930) p. 39.
See Mensagem Presidencial de 1921, in DOU, 4.5.1921 and Jornal do Commércio, 13.12.1920.
As Augusto Ramos, the President of the Rio Commercial Association sharply observed during the debates on the Bill, ‘the creation of the Rediscount Department is a result of the pull of two diverging forces: the first comes from commerce, industry and agriculture, which demand cash to be able to move, to save themselves; the second stems from the casual alliance of two groups: those who, as a matter of principle, attack all and every note issue and those who, even while recognising and accepting the need to help those who complain, saw in the Rediscount Department a strange creature … a mock Bank of Issue with all its inconveniences and not a single of its great advantages.’ Jornal do Commércio, 4.11.1920
See mensagem Presidencial de 1921, in DOU, 4.5.1921, and Chilton to Curzon, 27.12.1920, in FO 371/5535, A 582/263/6.
In spite of his reservations in relation to the political character of most of Banco do Brasil’s operations and to its strong links with the Treasury, Whitaker was a strong supporter of the creation of a lender of last resort. See J.M. Whitaker, O Milagre de Minha Vida (Editora Hu-citec, São Paulo, 1978) pp. 33 ff.
Ibid. p. 39. See Law no. 4.230, of 31.12.1920 for details.
Decree no. 14.635, of 21.1.1921 and C. Pacheco, História do Banco do Brasil, p. 174.
See the relevant files in FO 371/5536 and SAJ, 29.1.1921.
On this see Dillon, Read and Co. to Secretary of State (telegram), 21.10.1920, in USNA RG-59 832.51/207 and Morgan to Secretary of State, 24.5.1921, in USNA RG-59 832.51/224.
See, for instance, SAJ, 15.1.1921.
See Table A.8.
J.W.F. Rowe, ‘Brazilian Coffee’, p. 22.
See Table A.8.
Mensagem especial do Sr. Presidente da República ao Congresso Nacional, em 17.10.1921, in Brazil, Câmara dos Deputados, Documentos Parlamentares: Meio Circulante, vol. 14 (Typ. do Jornal do Commércio, Rio de Janeiro, 1924) p. 3.
At the end of March 1921 domestic prices of Santos 4 type had fallen to 45 milréis per bag as compared with 106 milréis in December 1920. See A.d’E. Taunay, Pequena história do café, pp. 373 and 378.
RC-JC, 1921, p. 19.
See Table A.10 and A.11.
See Table A.12. The reasons for the severe federal financial disequilibrium from 1919 are discussed below.
As presented in the Finance Minister Reports, since the fuller, consolidated, Balanços Gerais da União were not published between 1915 and 1923.
The outstanding value of federal long-term domestic debt rose by 20.7 per cent in 1921 alone. See Table A.15.
See H. Batista to J.M. Whitaker, 11.3.1921, in J.M. Whitaker, O Milagre de Minha Vida, pp. 107–8.
The discussion which follows concerns only ordinary government debt to the Bank on account of excess budget expenditures. It does not apply to debt arising out of the Bank’s acceptance of Treasury endorsed coffee bills since these, as ‘commercial’ paper could be rediscounted by the Department.
The President of the Bank was very sensitive to that and on one occasion in 1922 refused to follow the Minister of Finance’s instructions to raise the rediscount rate on those grounds. See J.M. Whitaker to H. Batista, undated, in J.M. Whitaker, O Milagre de Minha Vida, pp. 106–7.
See Table A.17. Voluntary deposits by large national banks at the Banco do Brasil began to be made after the creation of the Rediscount Department and the policy of attracting them was actively pursued by Whitaker, as discussed below.
J.M. Whitaker, O Milagre de Minha Vida, pp. 36–7.
Decree no. 14.898, of 20.6.1921.
See Banco do Brasil S/A, Balancetes da Carteira de Redescontos, in DOU, several issues.
Testimony of Dr. Homero Batista, ex-Minister of Finance, on coffee valorisation operations undertaken during the government of Dr. Epitácio Pessoa, made before the Senate Finance Committee on 24.11.1922, in Brazil. Câmara dos Deputados, Documentos Parlamentares: Meio Circulante, vol. 16 (Typ. do Jornal do Commércio, Rio de Janeiro, 1924) p. 1031.
As he put it in his memoirs: ‘Decidedly against official interventions I was also opposed to this decision at the beginning, all the more so because, knowing the weakness of the Banco do Brasil, I could have no illusions as to the resources upon which I could draw to finance an operation of such a vast scale.’ J.M. Whitaker, O Milagre de Minha Vida, p. 35.
J.M. Whitaker to E. Pessoa, 15.7.1921, in J.M. Whitaker, O Milagre de Minha Vida, p. 111.
Ibid.
The Commercial and Financial Chronicle, 6.8.1921.
Decree no. 4315, of 28.8.1921.
See Table A.8. The authorisation given by the Belgian government for
the purchase of 700 000 bags in July under a bilateral payments agreement may have given an additional fillip to prices. This agreement was part of a larger package signed in 1920, which included granting preferential treatment to certain Belgian exports to Brazil, a privilege until then only granted to the United States. On this see The Times, 28.8.1921, and the relevant files in FO 371/4432 and 5534.
See Table A. 10.
See DOU, 25.8.1921.
Pessoa’s tour also aimed at obtaining São Paulo’s support to go on with the heavy expenditures required by the government’s extensive anti-drought works then being carried out in the Brazilian north-east.
See Brazil, Câmara dos Deputados, Documentos Parlamentares: Meio Circulante, vol. 14, pp. 4. ff.
Ibid. pp. 39–44.
Ibid. pp. 61 ff.
Ibid. passim.
See Brazilian Warrant Co., Report to Annual Shareholders Meeting, in SAJ, 13.5.1922.
The Times, 6.12.1921 and Tilley to Foreign Office (telegram), 1.12.1921, in FO 371/5543, A 8914/8914/6.
J.W.F. Rowe, ‘Brazilian Coffee’, p. 22.
See Table A.17.
The 1922 crop amounted to 10.2 million bags but it was ‘somewhat overestimated until later on when picking was well advanced.’ J.W.F. Rowe, ‘Brazilian Coffee’, p. 23.
See Testimony of Dr. Homero Batista, etc., cit., p. 1032.
SAJ, 6.5.1922. The relevant correspondence relating to the loan negotiations is reproduced in E. Pessoa, Pela Verdade (Francisco Alves, Rio de Janeiro, 1925) pp. 197 ff.
Testimony of Dr. Homero Batista, etc., cit., p. 1032. As the lessons from the pre-war valorisation recommended, stocks were left in Brazil.
See E. Pessoa, Pela Verdade, pp. 186–8.
Ibid., p. 194. On British Treasury regulations see Norman to Niemeyer, 30.12.1921 and Norman to Blackett, 31.1.1922, in T 160 F 4319/111/1.
J.W.F. Rowe, ‘Brazilian Coffee’, p. 23.
Brazil: Câmara dos Deputados, Documentos Parlamentares: Meio Circulante, vol. 14, p. 361.
See Decree no. 4.548, of 19.6.1922.
J.W.F. Rowe, ‘Brazilian Coffee’, p. 25. On the behaviour of prices, see Table A.8.
See Table A.1.
See Table A.2.
As measured by the apparent consumption of cement. See Table A.2.
Brazil’s rapid recovery from the postwar slump, helped by the unforeseen results of economic policy measures has, indeed, a striking similarity with that after the Great Depression, whose causes have been pointed out by Furtado. For a recent restatement of his classic interpretation see A. Fishlow, ‘Origins and Consequences’.
See Table A.10.
For the years 1921 and 1922 taken together Haddad’s GDP deflator falls by 7.5 per cent and the Rio cost of living index by 18.7 per cent, while wholesale prices fall by 37.3 per cent in the United States and by 48.3 per cent in the United Kingdom. Data from Table A.3, United States, Department of Commerce, Bureau of the Census, Historical Statistics of the United States, 1789–1945 (USGPO, Washington, 1959) p. 233, and A.C. Pigou, Aspects of British Economic History: 1918–1925 (MacMillan, London, 1947) pp. 234–5.
See Table A.4.
See Table A.11.
See Tables A.16 and A.17.
Falling from very high levels from the middle of the nineteenth century, the currency ratio reached 2.62 in 1900, 2.32 in 1905, 1.91 in 1910, 1.69 in 1915 and 0.73 in 1920. Data from C.M. Pelaez, and W. Suzigan, História Monetária do Brasil: análise da política, comportamento e instituições monetárias (IPEA/INPES, Rio de Janeiro, 1976) Tables A.3 and A.4.
Another important innovation introduced into Brazilian banking during 1921 was the installation of a cheque-clearing house at the Banco do Brasil in June. See BBR, 1922, pp. 8–9. This was a long-standing demand of banking and business circles, but earlier attempts at implementing it had failed. On this see P. Neuhaus, Monetary History of Brazil, p. 60.
See Table A.16.
C. Pacheco, História do Banco do Brasil, p. 169.
Total Banco do Brasil deposits rose from 288 000 contos at end-1920 to 1 089 000 by mid-1922, while the value of bills discounted rose from 139 000 to 802 000 in the same period. A very large fraction of this increase was, as shown below, the result of Treasury credit operations. See BBR, 1923, p. 7.
BBR, 1921, p. 8.
Foreign banks’ reserve ratios remained markedly higher than those of Brazilian-owned banks: at end-1921 reserve ratios were 60.6 for the former and 27.8 for the latter. Data from MFR, 1923, pp. 76–7. It should be noted that the increase in the share of deposits held by national banks shown in Table A.2 was, to a large extent, the result of the explosive rise of Banco do Brasil deposits. Cf. Table A.16.
Report of the British Financial Mission to Brazil to N.M. Rothschilds & Sons, Messrs Baring Brothers & Co. Ltd., J. Henry Schroeder and Co., Appendix C: Republic of Brazil — Balance Sheet as at 31.12.1923 with relative schedules of Liabilities and Assets, by Sir William McLintock, in R.A. 111/220.
The total value of bills discounted by the Banco do Brasil amounted to 437 000 contos on 31.12.1921. See BBR, 1922, p. 7.
This plan originated at the Bank in or before June and was considered by Whitaker as being ‘indispensable to have the support from other banks and even to preserve the financial position of the Banco do Brasil.’ See J.M. Whitaker to H. Batista, 20.6.1922, in J.M. Whitaker, O Milagre de Minha Vida, pp. 108–9.
It is patently clear from the records of the Senate debates on the government proposal that very few of its members knew the terms of the Bank-Treasury contract and could gauge the consequences of what they were going to vote for. In the Chamber the Bill had been approved without debate for, so as to avoid having its approval delayed there, the government went as far as to use the tactics of concealing the proposal as an amendment to an otherwise irrelevant finance Bill already in the second round of voting, where it passed unnoticed. See Brazil, Câmara dos Deputados, Documentos Parlamentares: Meio Circulante, vol. 16, pp. 65–162.
A first draft of 100 000 contos was made in August while the proposal to allow rediscount of these notes was still before Congress. Following Congress approval, 200 000 contos were issued in October and an equal amount in November. See Report of the British Financial Mission, etc., in R.A. 111/220.
See Table A.16 and A.17.
J. Pires do Rio, A Moeda Brasileira e seu Perenne Caráter Fiduciário (José Olympio, Rio de Janeiro, n.d.) p. 204. To gauge what these obligations represented, note that total federal government revenue amounted to 972 000 contos in 1922.
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Fritsch, W. (1988). The Impact of the World Postwar Boom and Slump: 1919–22. In: External Constraints on Economic Policy in Brazil, 1889–1930. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-09580-3_4
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