Alberto B Martínez.

The Argentine in the twentieth century [microform] online

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Worse still : once the harvest was sold, at prices which
could no longer be calculated on the basis of the cost, gold,
now freed from all restraint, like a balloon whose mooring is
broken, would have resumed its upward journey. The
melancholy spectacle of 1890 and 1891 would have been
repeated; gold would have risen by leaps and bounds, in
contradictory and incalculable rushes, finally to reach the
limits that mean bankruptcy.*

Such are the disastrous results which would have ensued
had not the law of monetary conversion come just in time
to restrain the rapid depreciation of paper, and to give
money the stability it must possess if it is to be the faithful

* We remember that gold, -which on the 9th of August 1890 stood at 35
per cent, when a new Government came into power, had risen to 425 per cent.
by May 1891, and in October of the same year touched 464 per cent. ; the
highest premium ever known in the long history of the double standard during
the last half of the nineteenth century. In the United States during the war of
BecesBion, the premium on gold rose to 286 per cent, only (on July the 4th
1864).



THE DOUBLE CURRENCY 341

and precise instrument of commercial transactions, the
common measure of all exchanges. iSuch were the beneficent
results which followed shortly upon the operation of the
law ; and we can only regret that it has not always been
understood and applied with sufficient force by those who
were responsible for putting it into practice. The Govern-
ments which have followed since then have not always
followed the ideal of economy and scrupulous administration
which should ensure the success of this important reform.
None the less, the Conversion Fund amounts to-day to
£5,100,000.

According to the figures for October 1909 the monetary
situation of the country may be summed up as follows : —

The total of notes in circulation amounts to $686,291,704
paper, equivalent to £60,393,670, The Conversion Fund of
£5,100,000 in gold, added to £34,752,058 on deposit in the
Gaisse de Conversion and to the £14,073,515 deposited in
the various banks of the capital, forms a total of £53,925,573.
It follows from these eloquent figures that the fiduciary
circulation, notes, nickel, and copper, is guaranteed in
Argentina by an actual value of 65'9 per cent, of its total ;
the notes alone are guaranteed by 89 per cent, of gold.

Unquiet spirits from time to time, including the enemies
of monetary reform, announce their opinion in the press
that this law should be modified. Quite lately the well-
known journal La Naeion, which is distinguished by the
constancy and fervour with which it attacks this beneficent
measure, has opened its columns to an enquiry, in order to
obtain the opinion of the public, or at least of persons com-
petent in such matters. Happily common-sense triumphed ;
the law remains intact, continuing to benefit the whole
national economy.



CHAPTER IV

THE CAISSE DE CONVERSION

The principles on which the establishment of this institution is hased — The
necessity of a rapid redemption of fiduciary money — The imperfect success
of this programme — New issues of notes — New attributes of the Caiste
dating from 1899 — The exchange of paper for gold and vice versa — The
development of this system of exchange — The authority attaching to the
Caisse.

AMONG the official institutions which are closely connected
with the issue and redemption of paper money, the
Caisse de Conversion demands a special place, on account
of the important part which it plays in the financial life of
the Republic. This establishment was created in 1890, at
a moment particularly critical for the credit of the country,
when the terrible crisis occurred which ruined several banks
and resulted in a depreciation of the fiduciary currency
which exceeded all expectation. The Government which
presided over the destinies of the country understood that
it was necessary, in order to ameliorate such a situation, to
put some means into practice which should ensure a more
gradual movement of paper, its reduction in no matter
what form, and its future convertibility within a short and
definite period, as the message declared which accompanied
the draft of the law submitted to Congress.

In obedience to these excellent principles of financial and
banking policy, it proposed the creation of a Junta or a
special Directorate, " independent in its action, and uniting
the necessary faculties for the recovery, administration, and
application of the elements that must be confided to it for
the efi"ectual accomplishment of its important mission."

An " important mission " it was indeed that was confided
to the Junta by law ; for this body was to see the gradual
conversion and redemption of paper money, supervise the
strict execution of all the laws relating to paper money,
and oversee all issues of the same.
342



THE CAIS8E DE CONVERSION 343

With the object of effecting, sooner or later, the actual

, and efVective conversion of paper money, the law created a

" Conversion Fund," composed of the metallic reserves of the

guaranteed banks, the sums for which these same banks

would be debitors on account of the value of stock bought as

guarantees, the public funds issued to guarantee the bank

issues, and all the sums which, in virtue of other legislative

I enactments, might be destined to the conversion of bank

I paper, and especially those proceeding from economies made

' out of the general budgets.

The Executive attached a special significance to this

fund, proposing to use it to great advantage in the future ;

if the succeeding Governments had the wisdom to maintain

' the elements indispensable to the regular circulation of the

national currency.

These details prove that the fundamental idea at the

bottom of the creation of the Caisse cle Conversion was that

I of effecting, by its help, and by utilising the resources with

I which it was endowed, a rapid redemption of paper money.

f This intention, moreover, was solemnly affirmed at home

and abroad when the contract was signed with the English

t bankers for the issue in 1891 of the loan known as the

' " Funding Loan," amounting to £15,000,000 ; in virtue of

which loan the Government undertook to withdraw from

circulation, during each of the years 1891, 1892, and 1893,

§15,000,000 in notes, or $45,000,000 in the three years.

. Unhappily the Government's good intentions had no

I practical issue; the Caisse de Conversion, from the first

moments of its existence, found it impossible to fulfil its

object.

So the proposal to withdraw $15,000,000 a year went no
further than a beautiful ideal ; it never took definite shape
as a reality. In 1891 $1,696,676 in paper were burned ;
they came from an additional customs duty on certain
imports. In 1892 $1,463,424, having the same origin, were
disposed of in the same way. Besides this a sum of
$3,511,600, provided by the payments made by the National
Bank and the Bank of the Province of Buenos Ayres on
account of $35,116,000 lent them by the Government in
order to help thera out of a greatly embarrassed condition,



344 THE ARGENTINE IN THE 20th CENTURY

was also burned. The balance-sheet of receipts and ex-
penditures drawn up every year by the Comptabilite Generale
records only $1,248,032 as burned in 1891, and $3,586,255
in 1892, or $4,834,287 in two years; a very different sum to
the 30 millions which the Government had promised to
withdraw.

Thus the Caisse de Conversion, from which the Minister
of Finance had hoped so much, failed at its birth, and as an
institution gave no positive results. So it was not necessary,
as the Minister of Finance, Sefior V. F. Lopez, pleasantly
remarked, to await the appreciation of future Governments,

But this is not all ; instead of redeeming the promised
quantities of fiduciary money, the Government which was
then directing the destinies of the country — we must believe
that it was compelled by circumstances, which are so often
more potent than the human will — the Government actually
found itself forced to increase the total of paper in circulation
by emitting, for various reasons, further issues of notes.

Dominated by circumstances, it issued in 1890 $35,116,000,
in order to legalise the excess of an issue delivered to the
National Bank and the Bank of the Province of Buenos
Ayres. In the course of the same year it created an issue
of 60 millions more, in order to furnish the National Bank
with 25 millions, the National Mortgage Bank with
25 millions, and the City of Buenos Ayres with 10
millions. In 1891 it issued 50 millions in order to found
the Bank of the Argentine Nation, and finally 5 millions
more for the Mortgage Bank. In short, urged by necessity,
the Government created $150,000,000 of paper in two years,
which on the top of a previous issue of $161,766,590 in paper
was naturally followed by disastrous results.

The Government which took charge of the administration
in 1892 also manifested, in its programme, its firm intention
of increasing the value of paper money by its gradual
redemption ; an operation which would, of course, be the
duty of the Caisse de Conversion. To this end it included
the necessary sums in the budget, and $865,426 were burned
in 1893 and $8,000,394 in 1894. But the results obtained
by this measure were far from responding to the hopes which
were founded upon it ; although the Government religiously



THE CAISSE DE CONVERSION 345

and with much solemnity, burned on the 15th of each month
a determined sum of paper money — usually half a million —
the value of paper, far from rising, fell further and further
till below that of gold.

The Government tinally saw that its plan was useless;
and hastened to explain itself by the mouth of its Minister
of Finance, who declared that " the executive power recognises
that the withdrawal of eight millions of piastres per annum
cannot fundamentally alter the price of our paper ; but what
it does affirm is that this quantity will be sufficient, provided
the production of the country increases, provided that the
exports exceed the imports ; that is to say, provided that the
international balances are in favour of the Republic."

We may say in passing that these two desired factors
were realised ; but not the expected advantage, for the
Government again made the mistake of issuing 15 millions
of internal stock, bearing interest (£1,320,000), while at
the same time it extinguished another debt, also domestic,
which did not bear interest.

All these details prove in a conclusive fashion that the
original and organic functions of the Caisse de Conversion
were inverted from the time of its creation ; converting that
institution into a factor of depression in all that concerned
the paper currency, instead of being the instrument of
increasing its value.

After this date the Caisse operated as a secondary and
harmless department of the public Administration ; leading
an almost forgotten existence, until the year 1899, when the
law of monetary conversion was passed, which entrusted it
with two missions of great importance, which were destined
to exercise a beneficent influence upon the fiduciary cir-
culation, and therefore upon the economic life of the
Republic.

One of these two missions had as its object the establish-
ment of an office for the exchange of paper into gold and
vice versa, at the rate of 22727 piastres in paper for 1 piastre
in gold. The other consisted in forming a Conversion Fund,
to which more or less important resources were assigned.
This fund amounted in 1902 to £2,400,000 in gold, but at
a moment when an international complication wa« believed



346 THE ARGENTINE IN THE 20th CENTURY

to be imminent this sum was placed at the disposal of the
Government by authorisation of Congress.

The Government eventually returned £2,000,000 of this
sum, and since then the fund has constantly increased,
amounting in 1907 to £5,100,000, as we stated when speak-
ing, in the passages relating to the issues of paper money
affected by the Caisse de Conversion, of the results of the
application of this new law.

The law to which we are referring was put into execution
on the 9th of December 1899. On that day the first trans-
action under the new law was effected ; the Caisse received
100 piastres in gold, in exchange for which it returned
the equivalent in notes, in the proportion of 44 centavos
of gold to a piastre note. The balance drawn on the 31st of
December showed the existence of £292'6 in gold. At this
same date the fiduciary currency in circulation amounted in
all to $295,149,735.

Let us now look into the operations of the Caisse de
Conversion after this date.

During the year 1900 $18,398,449 (£3,679,690) in gold
was received ; but as this sum was eventually withdrawn
the fiduciary circulation soon reached its former figure.

In 1901 there was nothing done ; that is, the Caisse
received no gold.

In 1902 scarcely anything was done; £4209 was received,
and £3636 was paid out, leaving a balance of £573. The
operations for 1902 began in October, during which month
the Caisse received £68, 12s.; it paid out £67, 12s., so that
£1 remained. In November the takings increased to £1497,
and the outgoings were £1466, leaving a balance of £31.
In December £2639 were taken and £2102 issued, leaving
a balance of £537.

Only in 1903 did the operations of the Caisse de Conversion
amount to anything. The two principal causes of this state
of affairs were, firstly the settlement of the frontier dispute
with Chili, a question which had caused serious alarm, and
had resulted in enormous official expenses during the few
previous years ; and secondly the size of the commercial
balances. Bearing this in mind, it is not surprising that
the amount of gold in the Caisse de Conversion, and, con-



THE GAISSE DE CONVERSION :?47

gequently the issues of paper money, should have commenced
to increase and have continued to do so until they reached
the proportions wliich they have since attained.

In 1903 £9,208,284 in gold was taken, and £1,576,625
paid out; leaving £7,648,229. The busiest months were
April, when £2,519,048 was taken, and March, when the
takings were £1,738,395. The largest outgoings were in
March and July, amounting respectively to £239,133 and
£222,104.

In succeeding years the metallic reserve of the Caisse de
Conversion has continually increased, thanks to the favour-
able sense of the economic balances of the nation's trade,
and the capital which has entered the Republic, to be employed
in the establishment of new industries, or the creation of
railways, tramways, etc.

At the time of writing the metallic reserve of the Caisse
de Conversion has lately increased to £34,752,058, which,
added to the £5,100,000 of the Conversion Fund, gives a
total of £89,852,058. The proportion of these reserves to
the paper currency in circulation is to-day 659 per cent.

According to the law the increase of the metallic balance
in the Caisse de Conversion has inevitably caused, as a natural
consequence, the parallel increase of the issues of notes,
nickel, and silver, of which the amount in circulation increased
to $688,177,998 on 31st October 1909, or $393,028,267 more
than on 31st December 1899, the year in which the law of
monetary conversion was voted, and in which the same circu-
lation amounted to $295,149,731.

The rapidity with which the emission of paper has increased
has caused certain journals, and especially those which have
been prominent in attacking the law of monetary conver-
sion (whose beneficial effects they were yet powerless to
deny) to raise cries of alarm, thinking to see in this increase
a future economic peril, or the seeds of a dangerous crisis,
due to the inflation which, in their judgment, is produced by
such issues. But it is easy to prove that these alarms are
not justified from the moment when such issues are guar-
anteed by a corresponding deposit of metallic currency in
the Caisse de Conversion. Moreover, a very little reflection
will show that one cannot help admitting that this gold.



348 THE ARGENTINE IN THE 20th CENTURY

being the product of the ever-increasing economic balances o
the country, will affect the monetary situation equally i
instead of being in reserve in the Caisse de Conversion it i
to be found in the strong-rooms of private banks.

As we may see from these data, the Caisse de Conversioi
has completely changed its role. It has abandoned it
original function, which was confided to it by the law
namely, the redemption of the fiduciary currency and th
re-establishment of the monetary equilibrium when destroyer
by excessive issues of paper. To-day this institution is merel;
a purely mechanical department of the Administration, and it
functions might be fulfilled, at any rate theoretically, h
other administrative departments which are closely connecte
with it.



CHAPTER V

THE BALANCE-SHEET OF THE ARGENTINE ACCORDING TO
THE INVENTORY OF SECURITIES.

The Inventory or Movable Profkuty or Secprities — The capital repro-
sented by movable properties, etockB, bonds, shares, etc., is the only
kind of capital which lends itself to statistics — The great groups of mov-
able properties : National Funds. Railway Shares, Insurance Companies,
Foreign Banks. Mortgage Companies, and agricultural and industrial
undertakings.

The nominal amount of capital represented by movable values — Table of the
annual revenues of the same, and the sinking fund- -Division of this revenue
among the diflfereut countries having capital invested in the Argentine.

English capital — The importance of English investments in all branches of
Argentine activity — The benefits of a reaction in favour of Argentine
capital — French capital ; its small value compared to English capital
— German capital and its rapid increase — Approximate valuation of that
portion of revenue remaining in the Argentine, and of that which goes to
the various nations having capital invested in the country.

The Balance-Sheet — The assets are principally composed of exportation
values; the liabilities, the value of imports — The revenue of investments
exported to foreign countries, and the total of the sums expended by the
Argentine abroad — Table giving a summarised Balance-sheet and the
balance in favour of the Argentine — International exchanges and the im-
portation of gold confirm this favourable situation — Argentine capital will
presently play a more import ant part in the country as compared with foreign
capital.

The Inventory of Movable Values.

THE time has come to sum up our conclusions, and we
cannot do better than attempt to present the figures of
the movements of the capital invested in the Argentine, and
by stating, as far as possible, its yield. We have already
had occasion to declare that Europe han not turned her atten-
tion to the young South American Republic lor sentimental
reasons, nor on account of the beauty of her political institu-
tions nor the splendour of her landscapes. What interests
2 349



350 THE ARGENTINE IN THE 20th CENTURY

the general public is the extraction of the riches of the
Argentine soil ; the economic and industrial expansion of the
country, and its fitness as a field for investment and original
enterprise.

To respond to this mental attitude we have thought it
proper to undertake a dry and impartial inquiry into the
value of the capital invested in the Argentine, and the total
of its yield. Capital represented by movable values is the
only factor which has in some sense an official existence
which is amenable to control ; it lends itself to statistics suffi-
ciently precise to allow of our estimating, from this point of
view, the wealth of a country ; and it is consequently in this
direction that we may search for a standard with which to
compare the favourable estimates expressed in our precediog
chapters on the subject of the development and prosperity of
the Argentine Republic.

This inventory will lead us to other data, which are
equally instructive. In reviewing the movable values
and in estimating their yield we shall at the same time
examine into the general movement of foreign capital
and its earnings, so that we shall be able approximately
to state the amount and the profits of the capital invested
by the various European nations which have dealt with this
country.

By the aid of these statistics we shall finally see the
situation of the Argentine, which the results of its foreign
trade have shown us only imperfectly, in its true light.
Although the country has an extremely favourable com-
mercial balance, which in 1908 was not less than £24,000,000,
this sum has to support enormous charges for the payment of
interest on loans placed abroad: the dividends of railway
companies, of banking houses, of all manner of land companies,
of commercial and industrial companies, whose shareholders
are abroad, etc. etc. These are the sums we are trying to
determine, in order to draw up as exactly as possible the
balance-sheet of the Argentine.

This chapter will therefore be devoted to estimating on
the one hand what the country owes to foreign capital, and
on the other hand what profit foruiga capital draws fruiu its
inveetment in the Argentine. It is to some extent the current



THE BALANCE-SHEET OF THE ARGENTINE 351

account of Europe and the Argentine that we wish to

present, taking as our basis the movable vahiea, which
i are the only serious data upon which we can base our
j inquiry.*

The nominal total of Argentine movable values sub-
[ scribed up to the 21st December 1908 was £474,396,935
i (in gold), of which sum £219,513,399 represents sharcp,
I £104,502,163 bonds, and £150,381,572 the public debt of
1 the Nation, the Provinces, the municipalities, the capital
i of State railways, and the capital of the Bank of the
I Nation.

I If we compare these iSgures with the inventory of the
I movable values existing at the end of December 1904, we
• shall find an increase of £157,173,555. But if we take account
i of the fact that in the first amount the cedulas of the Province

of Buenos Ayres figure to the value of £15,400,000, while in
. the second they amount to £10,400,000 only (the amount of
I shares admitted to conversion b}' the Government), we see
i that the difference is considerably greater.

This increase does not arise exclusively from the new
I shares issued by companies created during the last two years ;
j a large proportion is due to existing companies, which have
; at last decided to furnish the information demanded in view

of this new inventory. But a certain number of companies
, still remain outside the inventory, whose stock would increase
j the total by 5 or 6 million pounds.

J Here is the list of the stock in circulation on the 3lst

i December 1 908 :

1 • In this book we make use of the fiKurcB which Seftor Alberto Martinez

I ccmmunicated to the International Statistical Congresa, held in Paris in Julj
i 1909.



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352 THE ARGENTINE IN THE 20th CENTURY





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Online LibraryAlberto B MartínezThe Argentine in the twentieth century [microform] → online text (page 31 of 33)