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UNIVERSITY OF CALIFORNIA
AT LOS ANGELES



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UMVERSrrY of CA].IFORNlA

AT
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TRADING WITH MEXICO



TRADING WITH
MEXICO



BY

WALLACE THOMPSON

AUTHOR OF "the PEOPLE OF MEXICO"




NEW YORK
DODD, MEAD AND COMPANY

1921



15'M)21



COPYRIOHT 1921

bt dodd, mead and company, Ihc.



PRINTED IN THE U 9 A. BY

gbt (fiuinn & jBoben Companp

BOOK MANUFACTURERS
RAH WAV NEW JERSEY



135



TO

ALBERT BACON FALL

A Statesman Whose Insight and Whose

Knowledge of Mexico Have Long

Sustained the Faith of Those

Who Love Her Best.



PREFACE

The book whose pages follow is the result of
a conviction, firm-rooted in observation and ex-
perience, that the American business man prefers
to judge for himself. He wishes the facts, and
beyond all the fundamental facts, and when he has
them his judgment is sure, quick and final. It is
to men who think in this way that this book is
addressed. It is the story, told as concisely as
the facts permit, of conditions as they truly exist
^ in the great land which, like a cornucopia,
-^' stretches to the south of us. It is written for the
^ business man of the United States, definitely, with
£^such limitations as exist for such a book — its value
^ to the European may be the greater because it
JJdoes not seek to straddle the national issue.
c^ I have written other books on Mexico. One has
'jseen the light of publication before this volume
;was written.* I have sought, in these other vol-
^umes, one upon the people of Mexico and one upon
the psychology which governs their actions in so-
cial and in business life, to lay a solid ground for
the understanding of the country and its people.
In the book which is offered here I give, freely,
openly, without apology, the facts of a commercial

1 The People of Mexico. Harper & Bros., New York, 1021. The
companion book, The Mexican Mind, is in preparation for pub-
lication as this present volume goes to press.

vii



viii PREFACE

situation which to me is the most astounding con-
dition in the business world to-day. I picture, with
the simplicity of truth, a country of vast natural
mineral resources, but virtually no agricultural
wealth, a country with almost no consuming popu-
lation, a country of radical governments which
have sought, frankly, to destroy capital and the
machinery of Mexico's own wealth. I have told
but little of the famous resources of Mexico —
those are described elaborately in many works.
I have told little of the labor of Mexico, for this is
yet to be harnessed. I have described none of the
great industrial needs of Mexico, because those are
obvious to all who run.

I have sought, rather, to set down those phases
of Mexican life to-day which are the background
of Mexican business. I have dared — what no man
with less faith in the American business man
would dare to do — to set forth honestly the truth
about Mexicans of to-day, the secrets of Mexican
government, the facts of Mexican ''bolshevism,"
the horrors of Mexico's degeneration under the
rule of her predatory caciques. These to me are
the fundamentals of Mexican trade, just as they
are the fundamentals of Mexican politics and of
the life of the Mexican people to-day. I have
sought to set them forth in their relation to the
grave issues of world trade, to set them in their
relationship with the ways of men in business and



PREFACE IX

with the ways of business in its relationship to
human life.

I am a friend of Mexico. Few who have writ-
ten of her life have been more deeply interested in
her welfare. I should like to lay here the foun-
dations for a solution of the Mexican business
problem by setting forth the unhappy picture, ig-
noring no detail, seeking no self-deceit, as is too
often the practice of those who write on Mexico.
I believe that more will be gained, more business
of a solid sort won, by those who realize and recog-
nize the truth of conditions in Mexico, than by
those who deliberately close their eyes to those
conditions.

Let us have the truth, then! Let us face the
Mexican trade problem as it is, with its vast po-
tentialities balanced, as they actually are, by the
sinister elements of ignorance, bitter poverty and
racial conservatism. Let us see the problem while
we see the golden goal. For this problem is no
mere issue of beating the British or the Germans
to a thriving market. It is an issue of bringing
into being the purchasing power of a populous
nation, which is bowed down to-day by the horrors
of revolution, of unthinking radicalism, of na-
tional degeneracy. He who shall solve that prob-
lem will win the trade of Mexico when she has
trade. That is all which is to be known, and the
only issue to be faced.



X PREFACE

This book is not a radical document. It does
not seek to explain the problems of to-day in terms
of to-morrow. The author finds in the radical
movements of the present the leaven of the fu-
ture — little else. He sees in the upheavals of our
day a searching for some essential truth which
will be a clarifying factor in this time of chaos
and distrust. He does not see in them the final
solution of any of the difficulties which hatched
them out into a too ready world.

Nor is this book reactionary. The author be-
lieves that the day of Diaz is long past in Mexico,
that the day of the dreamer of utopian visions —
Madero — is past in Mexico. He seeks in the pres-
ent and in the future the sane, firm grasp of actual-
ities which to the watcher on the tower is the only
hope of true progress. He sees in the orgies of
Carranza and his immediate successors not the
upsurgence of mighty ideals, but of personal am-
bitions and crass disregard of the bases of all
human progress. He seeks, in the whirling chaos
of the present, a firm footing. He seeks to give
the direction of such understanding as he may
have to those who think with him. He believes
that if he gives such a direction to them, it will
enable them to go forward to the winning of some
of the vast profits which await them in the Mexi-
can market.

One word more I would add. There rules to-day



PREFACE xi

in Washington a government one of whose mighty
maxims is the protection and encouragement of
those Americans who to-day go forth, as their
fathers went forth before them, to carve their
way in the wilderness. The Washington govern-
ment knows, as we all know, that the only wilder-
ness left to us is the open field of the vast unde-
veloped lands to the South. I believe that Wash-
ington plans definitely to support the American
pioneer to the fullest in his new conquest of the
New World. That his weapons of conquest are
dollars and brains and energy matter not, and
that he battles in lands over which the flag shall
never fly matters less. The fact that he is an
American, that he is honest, that he is patriotic
and sincere — these matter much in Washington.

This book, then, goes upon its way, its record
clear and envisioned in deep frankness and in
deep faith in the American business man and in
the American government of to-day. I offer it to
those who must go forth, to those who must per-
force place the funds at the disposal of those who
go, and to those who, in the councils of our gov-
ernment, are quietly, without ostentation or polit-
ical apology, placing firm hands to the backs of
those who dare and who give.

Wallace Thompson.
New York,

August 5, 1921.



CONTENTS

CHAPTHB PAGH

I Trading With Mexico .... 1

II Nature and the Mexican Market . 16

III The People Who Buy ... 48

IV The Credit op Mexico and op the

Mexicans 69

V Our Bill Against Revolutionary

Mexico 96

"VT Mexico and Her ''Bolshevism'* . 128

Vn The Rape op Yucatan .... 159

VIII The Romance of Mexican Oil . . 196

IX The Golden Geese .... 240

X The Highway to Solution . ,. . 258



TRADING WITH MEXICO



TRADING WITH
MEXICO

CHAPTER I

TRADING WITH MEXICO

Three fundamentals determine and will deter-
mine American participation in Mexican trade.
Excursions, however wet, will not change those
fundamentals. Enthusiasm, however sincere, will
not affect them. Above all, promises should not
be taken into consideration in our cool judgment
of them. American business men have never been
noted for sentimentalism in their own country;
they should not be sentimental in other countries.
Let us take up the situation and look at it with
the sane judgment we would apply to the question
of selling, say, a new type of water meter in New
York City.

The three fundamentals of the Mexican trade
question are not unique. They are, first, the Mar-
ket ; second, the Credit, and third, the Government
and Laws under which trade must be carried on.
Truly not original, and the astonishing thing

1



2 TRADING WITH MEXICO

about American business men who consider Mex-
ico is that they apparently lose sight of them, and
most of all lose sight of the emphasis which must
be given to each.

First, the Mexican market. Three phases
again: the people, the industries and the need.
There are 15,000,000 people in Mexico. Of these,
6,000,000 are Indians, and Indians that are com-
parable, literally, to our own reservation Indians
in the United States, in the things they buy and
the things they make. There are 8,000,000 mixed-
bloods, a cross of Indian and Spanish, but of these
8,000,000 fully 6,000,000 are almost as Indian as
their full-blood cousins. In other words, 12,000,-
000 out of 15,000,000 take and need nothing from
the outside world excepting food, at those times,
like the present, when they do not produce enough
for their own needs. More than that, the money
or goods which would pay for imported food for
the 12,000,000 are created by the remaining 3,000,-
000 — in other words, the actual market in Mexico
is not 15,000,000 people but 3,000,000. The rest
wear no shoes — only native tanned sandals. They
wear no civilized clothes, only white cotton woven
at home. They wear only home-made hats, the
raw material the fiber of palm trees which grow
wild. They have no need for culture, for houses,
for travel. Remember, then, a buying population
of 3,000,000.



TRADING WITH MEXICO 3

The industries are limited almost exclusively to
the extraction of the riches of the soil by mining
and through deep oil wells. In all Mexico, with
its vast sweep of territory, virtually nothing is
produced for export excepting those riches which
come from Mother Earth, and those overwhelm-
ingly under the enterprising management of the
foreign companies and individuals who alone have
ever sought to develop them. Only one industry
in Mexico puts human hands and human brains to
the wheel of progress and creates wealth — that is
the industry of growing sisal hemp in Yucatan.
Sisal hemp is indispensable for the making of
binder twine for the world's wheat crop, and is
the basis of what was onqp a great national and
international industry, ^et to-day even that- com-
modity has been cut in production almost to the
point of destruction, by the machinations of Mexi-
can government and graft, and Yucatan is not to-
day the great purchasing center that it once was.
Moreover, Yucatan is far from the Mexican main-
land, a principality, a country of its own, and its
riches have never been a true part of the re-
sources of Mexico, for it buys and sells direct
with the outside world.

Gold is the common medium of circulation in
Mexico to-day. There is not a peso of Mexican
paper currency in use. All is gold, or foreign
bills, with low-grade silver and copper as sub-



4 TRADING WITH MEXICO

sidiary coins. The use of gold is reassuring to
the business man. It looks like prosperity and it
does assure a firm rate of exchange. But the gold
in Mexico does not mean these things. Its great
significance is the absence of credit. Gold cir-
culates because no man trusts the government,
and every piece of gold that passes through your
hands in Mexico tells you that Mexico is far from
being on a stable financial basis, either as a gov-
ernment or as a business community. Gold is of
value, really, only because it makes credit possi-
ble. When you must ship boxes of gold into dis-
tant states at an appalling rate of insurance
against bandits and highwaymen, it is not pros-
perity, but rather the lack of it. When gold is in
circulation, and there are no bills, the available
money of the country is limited, literally, to the
total of the gold and to not one cent more. Wlien
there is paper in circulation it means that the gold
supply has been increased many fold because the
credit of the government has been added to the
gold to supplement the supply of money to be used
in trade.

In Mexico there is not only no paper money, but
there is practically no commercial paper. The
drafts of great foreign companies travel about the
land for weeks and months before they are cashed
and when they finally reach the bank on which
they are drawn, the backs are covered with en-



TRADINO WITH MEXICO 5

dorsements, and on some an extra sheet of paper
has been pasted to carry more signatures. And
that is not good business, and should not be re-
assuring to the prospective trader.

In Mexico to-day no one trusts the government,
and as a result no one trusts his neighbor. The
business men of Mexico who are demanding long-
term credits abroad will not trust their oldest cus-
tomers, and cannot themselves get credit in their
own country. Recently, when the Mexican gov-
ernment wanted credit on a large supply of rail-
way equipment, it was told that if one young Amer-
ican, engaged in running private trains at heavy
cost over the Mexican railway systems, would
guarantee the bills, the Mexican government could
have what it needed. Otherwise, cash with order.
The Mexican government is trying to get railway
equipment, and is making promising announce-
ments. But it is getting very little, and for what
it is getting it pays almost entirely in cash, or,
strangely enough in this age, barters commodities
or prepaid freight tickets for it ! These are facts,
and extremely significant facts. The railway
equipment men want to know how the government
is going to pay — and that is what all Americans
who contemplate trade with Mexico should want
to know.

But the need of Mexico, the power we have to
help her rehabilitate herself ! Ah, that is a strong



6 TRADING WITH MEXICO

bid, oven ^vitll Avhat we have called the unsenti-
mental American business man. He wants to
give her a lift now, when she needs it, and then
he will not be forgotten when the big splitting up
of profits comes. Perhaps this is true. Let us
look at it. For some years now we have been
following the very laudable and beautiful system
of going more than half way with Mexico. We are
still urged to follow this excellent method. The
only trouble is that the "more than half way" is
getting longer and longer, and Mexico is asking
more and more and giving less and less. The
kindly souls who have sought to get into Mexico
with their surplus stocks are not gaining anything,
except curses and distrust. So far, save for the
promises which have always been forthcoming,
there is nothing coming out of Mexico to help the
trade we are hearing about.

Most of the talk about Mexican trade for Amer-
ican manufacturers was bom, moreover, of our
own need to get rid of accumulated goods. Be-
ginning late in 1919, there was considerable inflow
of these cheap goods into Mexico on good terms.
Those who were fortunate enough to unload
talked of it, and the gossip went about that Mexico
was a fine place to sell off extra stocks. But after a
year, the unloading system began to glut the Mex-
ican market, and to-day, when the same manufac-
turers want to sell again, they find that Mexico



TEADING WITH MEXICO 7

wiU take — only goods at sacrifice prices. They
went half way and more, did our manufacturers,
and Mexico did not ''come back." Instead she
sat tight where we came to her, and insisted on
our coming a little further with concessions to
her needs and wants. The result is that to-day
there is nothing like the demand for American
goods that there was when we first did the un-
loading which we thought would whet the Mexi-
can appetite. Mexico is like the customer of a
*'fire sale" store — she will buy only the most ob-
vious bargains. It is cash trade for a section of a
town where there used to be credit, and where
there is no credit to-day. But the customer is
again demanding credit — and cash-trade bargains
at the same time.

This question of credit is of necessity compli-
cated. But perhaps the answer as far as the
American business man is concerned is contained
in the fact that while the Mexican merchant de-
mands credit he himself does not give credit — no
country was ever on so thorough a cash basis as
Mexico is to-day. The merchant who is asking
for credit is carrying on his business from hand
to mouth; he has no accounts on his books to
guarantee the goods for which he is promising
to pay. He asks credit on his character standing
and on the possibilities of his market — he offers
literally nothing else. Personally, many Mexicans



8 TRADING WITH MEXICO

and many foreigners in Mexico are reliable and
honest men, but no sane business man would take
in the United States risks similar to those de-
manded by his prospective customers in Mexico.
And the possibilities of the market — ^those are as
yet thin air and enthusiastic hope, which gain
strength only from our national need to get a
foreign outlet to keep our plants going. Let the
American manufacturer weigh these two consider-
ations with the additional realization that there
is no reserve credit in the background.

Eeserve credit, such as bills paj^able, sound
real estate values and prospects of peace and
good business years ahead, are comparable to the
unseen sources of energy in the human bod}^ on
which that body lives and thrives during lean
periods. Mexico's lean period has now lasted for
eleven long years, and in that period the country
has been living literally on its reserves alone.
Again and again one hears the expression, ''Mex-
ico is living on her fat," and the continued marvel
is that she has lived so long and survived such
lengthened calamities through so many ghastly
years of destruction. As this is written, there has
been some appearance of regeneration, a noisily
announced period of ''reconstruction." But as
yet this is only an appearance. Actually while the
wheels of business and life are running more
smoothly for the moment, this is obviously a sur-



TRADING WITH MEXICO 9

face condition — deep down under the surface of
Mexican life the wasted tissue remains. Mexico
is not yet filling the interstices of her flesh with
that reserve strength which is business credit and
business promise.

But why not help in the rebuilding, and thus
take a risk which will probably bring great gain in
the years of progress to come?

The answer to this question must be based on a
thorough understanding of the third of our three
great issues — Mexican Government and Law as
applied to business. The Mexican revolutions
which began in 1910 had for their announced ob-
ject, "Mexico for the Mexicans." The idea was
to bring the foreigner under control of Mexican
law and government. This was eminently just — if
it were true, as assumed, that under the Diaz re-
gime the foreigners had been above the Mexican
law. The facts were largely otherwise, however,
despite some glaring abuses. In the working out
of the idea of "Mexico for the Mexicans," the re-
vised as well as the entirely new legislation and
procedure went far beyond the normal reaction
against the alleged irregularities of the Diaz time.

In the new "Constitution of 1917," which is lit-


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