IN a certain border town between Mexico and the United States the line which separates the two countries is marked by monuments along one of the streets. On one side of the line one can see sordid, low, gray adobe houses, poorly dressed people basking in the sun, the streets clean but unpaved and dismal. On the other side of the line the houses and dress of the people, their habits and cheerfulness, show another life. I saw those conditions in that town many years ago, when there was not a hint of revolution in Mexico. For those who are inclined to follow the line of least resistance in explaining this contrast, the usual commonplaces of climate, race and psychology were then useless because Mexicans and Americans lived in the most friendly relations; Mexican and American young men married American and Mexican girls; the Spanish and English languages were used promiscuously along the border; the Catholic and Protestant religions throve as well on one side as the other; but there was still an undeniable line of separation, constituting an international riddle more puzzling than the enigma of the Sphinx.

To find the solution of the riddle, let us see how a man in Mexico responds to environment and historical forces and how economic science explains many Mexican mysteries and suggests the proper coordination of scattered forces which so far have proved unable to achieve any national cultural purpose.

We constantly hear it said that Mexico is one of the richest countries of the world. This is the first fallacy that we need to correct, as it is the origin of many others.

The traveler who goes from the United States via Laredo or El Paso to Mexico City will be at a loss when, after more than a day's journey, he has not seen, except in very rare instances, anything but desert land, with no other vegetation than shabby gray bushes, cactus and a type of low fruitless palm. Around the railway stations are ragged little boys, stolid-looking creatures who look upon the people of the train as beings belonging to another world, the world of the happy. The traveler at the same time will be unable to conceive how the situation of those poor people could be improved, as there is no possibility of agriculture, commerce or industry in all the region he has seen.

Only when the traveler comes within about three hundred miles of Mexico City does he begin to observe tracts of land under cultivation and here and there streams of water which stimulate the people to work. He has arrived in one of the best sections of the country. He is now at an altitude of about five thousand feet above sea level. To the east a high chain of mountains bars the passage of the clouds carried by the trade winds from the Gulf of Mexico; only in summer time, from June to September, when the clouds are lighter, do they pass over the mountains and condense into rain. Sometimes the rain comes too late--after the seeds have decayed in the ground and there is no longer time to sow again; at times rain is so persistent that the farmer has no chance to cultivate, and the crop is lost; on other occasions, after early promise of rain, water is absent just at the time when the ear of corn is filling; or not infrequently, when all has gone well and hopes are most brilliant, a frost at the end of September changes hope into deception. One year out of five, perhaps, the farmer gets a chance to raise a good crop and reimburse himself for his advances. And then he must pay a part of his debt to the banks. You may see, therefore, how hazardous agriculture is in the Central Plateau and on the western slopes of the Mexican mountains, and why it can only be undertaken by persons with financial resources. The situation could be improved by irrigation, by building reservoirs and aqueducts, but this would require many millions of dollars.

On the eastern slopes of the mountains rain falls in great abundance, the land is fertile and the climate propitious for agriculture. Those who have gone from Vera Cruz to Mexico City have seen the wonders of that tropical vegetation. Unfortunately, that part of Mexico is infested by malaria, yellow fever and other forms of sickness as well as by poisonous insects which menace and make sombre the life of the people. Who may say the millions of dollars required for its sanitation?

This endless series of mountains constitutes the most pronounced geographical feature of Mexico and makes communication a problem, not only in export and import trading, but in domestic trading as well. The railways existing in the country are only the framework of a real system of communications; they need to be supplemented by a thick net of secondary lines in order to tap the regions of greatest agricultural promise. The present railways were only planned to facilitate the importation of foreign goods to the large centres of population and the exportation of ores and metals from the mining districts. So the people upon whom the country should most depend for its support and welfare live isolated and are forced to be satisfied with a very scanty production. To bring those people into modern life and to utilize the agricultural parts of Mexico would require many millions of dollars for building roads and railways.

The influence of geography on the Mexican people is also evident when considered from another point of view.

In the early colonial period the commerce of Mexico was monopolized by Spain, and this has been the explanation given by most writers for the backwardness of Mexico. They do not seem to know that England monopolized the commerce of her American colonies more strictly than ever Spain did hers. The problem, therefore, is to explain why, as soon as the English colonies were independent, they began sending their ships all over the world, while Mexico could not find any better use for her independence than closing the country to foreign trade by a prohibitive tariff. After more than a century we have not even the foundation of a merchant marine, and our exportations are limited practically to ores extracted by foreign enterprises.

During the Spanish régime we had a form of foreign trade; we sent sugar, tobacco, cotton, cochineal, indigo and some other articles, free of duty, to Spain. With independence we lost that trade to Cuba and could not send our products to compete with those of any other country. The reason was not principally the Spanish monopoly, but our lack of internal communication. The abrupt mountains not only prevented the inhabitants from sending their products to the coast for exportation, but also hampered domestic trade. In many cases there would be famine in one district and plenty in another. Freights were prohibitive. Nature seemed to have condemned each region to keep its own products. Humboldt observed in 1804 that the wheat from Puebla could not compete in Vera Cruz with the wheat of Boston, transported by boat.

In addition, lack of means of transportation made traveling unusual and caused mental as well as financial poverty. Prejudices were deeply rooted; the people really believed themselves to be the richest of the world, even though they lived in destitution. They took the potentialities of the country for actual wealth. People from Sonora or Sinaloa were almost as strange to those of Yucatan or Oaxaca as Peruvians or Chileans. There was no trade between them; the Spanish traditions, language and institutions were the only common tie. Patriotism as a result came to be merely sentimental, and there is today a complete lack of knowledge among the cultured classes regarding the needs of Mexico as a whole. The ruling classes, in addition, seldom travel abroad, and this habit causes many mishaps in our relations with other countries.

Preposterous Mexican exaggerations regarding the part played by Mexico in the world, regarding the power and influence of its various provinces or states, and even regarding the role of individuals in the development of the country, are only the natural result of the aloofness and provincialism imposed by the country's geographic features.

Now if from the field of geography we pass on to a study of the people themselves we find on the one hand a group of Indian tribes, with different degrees of culture but all of them adhering to their own civilization--a civilization which Spain, notwithstanding her great efforts, could not thoroughly eradicate; and on the other hand people of Spanish stock, with a Christian or European culture. The so-called Empire of Montezuma was geographically small, perhaps less than one-fifth of present Mexico, and even so it was not homogeneous, but a mere aggregation of tribes without any other connection than the tribute paid in common to the Aztec king. Nothing like the unified Empire of the Incas, with its amazing socialistic organization, was ever attained or even contemplated by the Mexican rulers whose subjects had no conception of any loyalty to a superior tribe and were only kept united by force.

The cruelty of the Indians towards others of the Indian race could only compare with their humility and obedience towards their conquerors. This had an evil influence on the Spaniards. They knew that in all matters not involving the property of the Indian they could command him without being hampered by any resistance. As a result they lost their stamina. They found it so comfortable to have their needs supplied by others, to have others do their work for them, that they yielded and the backbone of Spanish civilization was broken.

The laws of the Spanish colonies, called the Laws of the Indies, are all inspired by the religious obligation of the king to Christianize the Indians. On that principle, the method invariably used in preparing those laws was first of all to secure as complete information as possible in reference to matters which would be affected by the law, and then to make the rule the natural consequence of these facts. This excluded the idea of equality most emphatically. Differentiation was necessary to protect the Indians against the aggressive Spaniards and to lead them to a better life. If differentiation were a denial of equality, it was nevertheless an affirmation of common sense and justice, and it explains why New Spain lived in peace and economic prosperity during three centuries, while as soon as that differentiation disappeared theories of equality brought about chaos and ruin.

When Mexico became independent the principle of equality made a general sweep of differentiations, and therefore of the organization laboriously worked out during the Spanish régime for the best interests of a composite society. All our traditions, the treasures of wisdom and experience accumulated by the foresight of our forefathers, were abandoned in favor of the absurdities of the French revolution. The defenders of those traditions were branded with the name of aristocrats and called indolent and ignorant conservatives. The enemies of those traditions called themselves liberals and democrats, thus gaining the sympathy of the politicians of the outside world who, at that time, were exploiting the same prejudices in their own countries.

In Mexico the principle of equality was proclaimed as far back as 1821 as one of the bases of the plan for independence, but no efforts have ever been made to obtain a clean cut definition of the term. It is evident, however, that the term "equality" as applied in Mexico has a very restricted meaning in comparison with the meaning given it in other parts of the world. In Mexico it means that all persons, regardless of learning, preparation or ethics, are equally qualified for governmental positions. It is admitted that a lawyer, a physician, an engineer or a shoemaker needs training; but when it comes to voting for or becoming a President of the Republic or a Minister of Public Education or a Congressman (who may be appointed to a congressional committee charged with considering matters as complex as a customs tariff), a person can depend upon his intuition. In Mexico, where the number of people of Indian mentality is more than double the number with European culture, the unscrupulous orator and the man with the terrorizing sword win the admiration of the masses. In fact Mexico, through the working of the principle of equality, seems to demonstrate the soundness of the famous thesis of Faguet, that the basis of democracy is the worship of incompetence.

An attentive observer of Mexican affairs readily perceives that even though Indians seldom attain a high position in the government, they indirectly are the real political rulers of the country, its real lawmakers. In time of peace the Indians, when properly controlled, constitute one of the most valuable industrial elements of Mexico. But as a political element they are directly responsible for that strange type of tyrant so frequently found not only in the history of Mexico but of all Spanish-American countries where the Indians constitute the majority of the population. The Indians cannot understand how a piece of paper cast in an urn can materially improve their situation, and are entirely indifferent to the electoral process. They invariably obey the government in voting for the official candidate. In advance of an election, the President of the Republic circulates instructions to his subordinates throughout the country to use their efforts to have his candidates voted for by the people. The governor of each state follows the same method in local elections.

The effects of this Indian political inertia are, first, the abstention of enlightened patriotic people from entering the political arena, second, the nullification of public opinion in political matters, and third, the absolute irresponsibility of the government.

But if there is no way to persuade the Indians to use their rights in making a free election, it is, on the contrary, very easy to persuade them to take a rifle and follow a leader in his fight for liberty. They see in this an immediate and practical result; they can plunder and indulge in other excesses, show their strength and in general become prominent. Thus both their peaceful and their warlike political activities have produced the result that never during the independent life of Mexico has a group of persons who have once obtained power been superseded by election, but only by dint of an armed rebellion. That is a constant law of our history. The written constitution of Mexico, imitated from that of the United States, provides that the authorities must be periodically renewed by means of elections. But the provision is vain.

We may now see that the rebellions which overthrow the governments of Mexico cannot be called revolutions. A revolution is a radical change, and if there is anything that has never been changed in Mexico it is the method of putting new public functionaries into office by rebellion. That method is the law, the necessary fatal consequence of things. If a time ever comes when the people of their own volition use the ballot, then and then only may we properly say that there has been a real revolution in Mexico.

If by democracy is meant the will of the people, and by people is meant that part of the population active in politics, then we must conclude that in a country governed directly or indirectly by the Indian mind, indifferent towards elections and enthusiastic for changes brought about by rebellions, rebellion is the operation of democracy. Lack of periodicity and difference of methods do not alter the substance.

One of the characteristics of primitive mentalities is an inability to understand what we call natural laws. They are more attracted by mystery than by explanation. The stage of our Indians is what Comte called the theological period of development. Their conception of government agrees with their theological stage. They now believe in the power of the President of the Republic as formerly they did in that of Montezuma. Natural laws do not mean anything to them; the decrees of the god-ruler are almighty, possessing the character of a magic spell. Their plans for the solution of the biggest social problems are simple formulas.

After the attainment of independence the people saw that the happiness which had been promised them did not materialize. The politicians thought that, as all evils had come from the rule of the Spaniards, the only thing necessary to complete their happiness was to exile the Spaniards; a decree was accordingly promulgated, expelling them with their money--and their business ability. When the situation still did not improve the politicians found a new recipe, which was to take the property of the Church and with it pay the foreign debt which they had stupidly contracted in England. It is true that the measure was tantamount to confiscation, laying down the principle that property could be taken without compensation. But what of that if, as the politicians, unable to understand natural laws, believed, the welfare of the people so demanded?

The Catholics naturally did not believe in the magic effect of the recipe and opposed the measure. At that date the Mexican Catholics had no connection with the American ones. The Liberals were able to enlist the sympathy of the United States, which sent a warship and captured the flotilla of the Conservatives just in time to prevent them from taking Vera Cruz, where Juarez, the head of the Liberals, had taken refuge.

The Conservatives, realizing that they could not overcome the influence of the United States, fell in with the plans of Napoleon III to help Mexico organize a strong monarchist government and act as a buffer state to stop the spread of democratic ideas through America. The sphere of the contest was thus enlarged and the issues changed. It became a struggle between France, seeking to curb the democratic movement in America, and the United States, which has always seen with satisfaction the American countries calling themselves democracies--although it is a misnomer which allows autocracy and tyranny to be the more irresponsible.

Maximilian won the support of the most intelligent and cultured people of Mexico, and as long as the United States was engaged in the Civil War the imperialists had the upper hand in Mexico. But when the Civil War was ended Maximilian realized that the empire was doomed. Juarez then came into power again, the property of the Church remained definitely confiscated, and the principle was established that when the politicians consider that the public welfare so requires property rights may be annulled.

As the Conservatives had foreseen, the foreign debts were not paid with the proceeds but rather increased, the federal budget remained unbalanced, and agriculture, which had utilized the money of the Church at a moderate rate, was deprived of that help.

The practical result of all this was to deepen the gaps which divided the Mexican people among themselves and from their rulers. And religion, which in all intelligently organized countries constitutes a cohesive force and which under the Spanish régime had achieved wonders in the civilization of the natives, turned into the enemy of the state and therefore an element of dissolution.

In 1876 General Diaz overthrew the government of Lerdo de Tejada, who adhered to the intolerant policy of Juarez. The secret of Diaz's success consisted in his ignoring party lines and adhering as far as he could to the Spanish method of solving individual problems with a regard to the facts of the situation, as distinguished from the practice of trusting to vague panaceas. But all continued talking democratic precepts and every act was cloaked under the guise of democracy, in order not to offend the United States. It was playing a farce to live in peace.

General Diaz could have continued this method successfully had not agitators, principally after Diaz gave a famous oil concession to an English concern, again gained the public ear. When Diaz left power the old method of changing government by rebellion was resumed. The new recipe of the agitators was as simple as the ones which already ended in failure: to confiscate the land of those who had proved able to organize and maintain agriculture and turn it over to those who had proved unequal to the task.

In this case, however, the property of Americans was involved in the confiscation and the United States Government protested.

The merciless application of the principle of confiscation--taking the land from its owners and giving it to the Indians--has only resulted in Mexico now needing money to buy corn and wheat from the United States to avoid famine.

Let us now view the situation from a different angle.

During the Spanish régime the public finances of Mexico were in a prosperous state never afterward attained. Officials were paid for their services, or they received honors and distinctions which more than compensated them. Public roads were built and maintained at great cost from Mexico City to Vera Cruz, Toluca and Guadalajara, to Santa Fé in New Mexico, and to practically all the important centers of population. The wonderful monuments of colonial architecture, which are the pride of Mexico, were constructed during that time with funds supplied by the government or contributed by philanthropic and wealthy individuals. Missions were founded for the education of the Indians, and schools and universities produced men of European reputation.

After meeting all the expenses involved in these activities, and after supplying the deficit of Louisiana, Florida, Cuba and other colonies, a surplus of about six million dollars was sent yearly to the King of Spain. The King, furthermore, borrowed money from his subjects of New Spain, so that the colony was at that time a creditor country, a situation which has never again been reproduced.

When independence was achieved, after eleven years of exhausting war, the finances of Mexico were destroyed.

It must be observed that Mexican independence had an entirely different character from that of the United States. The latter was brought about by concrete economic causes. The independence of Mexico was merely the result of Spain's weakness, due to the war with Napoleon, which afforded an opportunity for rebellion to a people upon whom Spain had been trying to impose a novel civilization. The achievement of independence by the United States saw the birth of a new country which was to further European civilization. But Mexican independence produced a nation in which European civilization was destined to fight against great odds.

Economics did not constitute at all a popular study in Mexico, and the few persons who understood the financial problems facing the new republic were utterly disregarded by the politicians. The people were told that the country was wonderfully rich and that if they were poor it was due to the fact that the Spaniards had appropriated all the wealth to themselves. Two loans were contracted in England on disastrous conditions; but no one cared for the details, as it was supposed we could pay interest and amortization with the money formerly stolen every year by the King of Spain. The money thus borrowed vanished into thin air and the government found itself unable to pay its officers and, what was worse, its soldiers. With an empty treasury and not the slightest knowledge of economics on the part of the government, the most ruinous propositions of the usurers were accepted. Certificates of payment of duties worth millions were given in exchange for a few thousand pesos.

Naturally the money so advanced lasted but a brief space, all duties were collected by the lenders, and the only possible solution was to overthrow the government and to secure a new personnel which could disown the debts of their predecessors and collect the duties in cash. But as the duties were paid at the seaports and distant places, and as communications were slow, the usurers were called upon again, new certificates of payment of duties were issued, new penury ensued, and a new revolt was necessary to overthrow the government and substitute one which could pay the officials and the army.

Under these circumstances the overthrowing of the government by revolt was one of the governmental functions performed by the people--that is to say, by the politicians. This explains peculiarities of our history which may appear unexplainable to the non-initiated--as, for instance, the action of the President of the Republic in leaving his position to the Vice-President, in order to lead a revolt against the government.

Since in every case it was considered necessary to have a military man issue a manifesto to show the reasons for the revolt, and since that paper never failed to make mention of liberty and democracy, the average Mexican historian considers all these uprisings as struggles for liberty and democracy.

To any fair-minded, common-sense business man what Mexico needed was not more democracy or liberty but a bank to concentrate the revenue and make payments, to attract the monetary reserves of the country and to redistribute them among merchants, agriculturists, miners, etc. Money was constantly being coined in the mints, and constantly leaving the country, so that we may say that money was as plentiful as the poor circulation within the country warranted. It was, then, a question of organization.

We have had men able to organize a factory, a farm or a commercial enterprise, both honestly and skilfully, but unfortunately their activities have so far not been devoted to organizing the monetary reserves of the country. On account of the inability of our rulers to organize those reserves the interest rates have always been higher than in colonial times, and Mexicans have been unable to compete with foreigners, even in Mexico, when the latter are backed by money from their own lands. Our rulers could not understand a banking system which, shifting the economic center from the government, would give persons a value depending upon their productive capacity instead of the value now set upon them by virtue of their merits as revolutionists or politicians.

The only remedy for Mexico's poverty which has appealed to our politicians has been to contract foreign loans, which have never been paid, and to invite foreign capital to invest in Mexico. In order to support their argument as to the wisdom of this course the politicians cite the example of the United States, which first rose to economic power through the help of European capital. They disregard the fact that the population of the United States is made up of immigrants of marked economic ambition, that they have always had banks and supplies of money at low rates of interest, and, finally, that they have enjoyed the constant protection of their laws. For these reasons Americans did not have to search abroad for purchasers for their property, as Mexicans have always done, but only for temporary financial assistance.

To invite foreign capital to Mexico without preparation for its proper utilization is, and has been, suicidal. If we continue that policy a day may come in which those who have the rights of citizens will no longer possess any interest in the land of Mexico or its enterprises.

The foreign industrial enterprises established in Mexico never fail to secure a liberal concession from the government in the form of a high protective tariff, with the result that the Mexican people pay for their products three times as much as they would were those commodities imported--and all for the benefit of shareholders in Paris, Berlin, London and New York.

Our railways were built by foreigners, thanks to liberal subsidies from the government which greatly increased our national debt. As I have said, these railways were planned to serve foreign interests: to import foreign merchandise to large cities and export the ores of foreign-owned mines. Sections with great agricultural possibilities remained isolated if they did not happen to be on mining or importing routes. Thus at the same time that the people were invited to buy foreign products they were prevented from paying for them in kind.

The effect of our railway policy can be seen by taking a glance at the table of our foreign trade before the Mexican revolution. As exports considerably exceeded imports we may think that Mexico was a creditor country. Why, then, was foreign exchange against Mexico? The reason was that the chief item of export was made up of minerals, which went abroad to pay not for Mexican imports but only as dividends on shares or interest on bonds of foreign mining corporations.

When, owing to extravagance or mistakes in administration, one of the large railway companies became nearly bankrupt, our government, afraid that such a failure would discourage foreign capital, made an arrangement by which it and other railway companies were merged into one, called the National Railways of Mexico. It was provided that the government should have a nominal control of the lines by the exercise of a voting power on certain shares in shareholders' meetings, but should receive no profits except in a very remote contingency. In consideration for this nominal control the government gave an unconditional guarantee of the bonds to be issued. This guarantee has of late been extended to all the obligations of the company so that it does not need to be particularly diligent and economical in its management and one day or another the Mexican people must pay the bill. As the whole success of the scheme depended on the sale of bonds in foreign markets the syndicate representing the bondholders in New York had the real control. Since the merger all competition has ceased and nearly all movements for agricultural lines have stopped.

The most serious ailment of Mexico, which has impoverished her during more than a century, is the excess of importations over Mexican exportations. Perhaps it is better to say that that is an alarming symptom of an internal disease which our statesmen have never tried to diagnose and cure. Quite the contrary, the custom house dues being the main source of revenue, they are anxious to see importations increase and they consider any increase a sign of national prosperity. This false reasoning is responsible for one of the gravest and most injurious mistakes ever made in the economic history of Mexico. I refer to the reform of the monetary system.

When the value of silver began to decrease, provident governments in other countries very wisely took measures to stop the minting of silver coins. The Mexican Government did not show any interest in the matter for more than twenty years, during which time foreign miners freely brought their silver bullion to the mints to have it coined; and with the money thus obtained they bought up all the gold coins in Mexico and exported them, with profit to themselves and loss to Mexico.

Owing to the peaceful condition of the country, there was a considerable increase in the population, but the growth of industry did not keep pace with it, so that there was always a greater supply than demand of labor; this, together with the depreciation of our silver coins, brought it about that while the wages paid our salaried classes were equal in denomination to those paid in colonial times they had less than half the purchasing power.

Under these circumstances the only solution of the monetary problem was, in Mexico as it had been in other countries, to rehabilitate the value of the silver coins by stopping silver coinage. This, however, would have been a gradual process, of a type that never appeals to our government.

As the sign of the depreciation of our peso was the foreign exchange it was supposed that the whole problem was a problem of exchange. Furthermore, the fluctuations of our money in foreign markets were responsible for the fact that foreign capital did not come to Mexico, as our so-called economists desired; moreover, the decline of the peso meant diminished importations. All this suggested to the Minister of Finance a magic remedy.

By a decree of 1905 the value of our silver peso was reduced from one hundred cents gold to fifty and the government guaranteed the exchange in foreign markets by creating a committee charged with the selling of drafts at that rate. This was a mere banking trick by means of which Mexican taxpayers were to help the importers of foreign goods. In twenty-four hours it revolutionized our traditional monetary system and it was lauded in political circles as evidence of the wonderful talents of the Minister of Finance. But the needs of the salaried classes were entirely ignored and the more ambitious of the workers began to emigrate to the United States, thus depriving the country of one of her most valuable assets.

That year the revenue derived from custom duties on importations was so great that for the first time since the independence of Mexico the federal budget was balanced without having recourse to foreign loans. Since 1895 the Minister of Finance had annually announced to the Congress that the budget was balanced, but it had invariably been camouflage. He had arbitrarily divided expenses into two classes: regular and extraordinary expenses. All that could be paid with the revenue came in the first class, and in order to pay the other without showing a deficit he secured an authorization from Congress to issue bonds of a so-called internal debt apart from the budget authorizations. He even succeeded in that way in showing a favorable balance and talked of reserves in the treasury. This misled the Mexican people as well as foreign investors.

Also, as contractors of public works were paid in bonds of the so-called internal debt, these were sold indiscriminately and much depreciated. Contractors took that depreciation into account in their estimates, and the burden on the taxpayers was in that way made heavier. They were paying for the prestige of the minister and for the benefit of the foreign investor.

General Diaz was not an economist. He relied on his Minister of Finance for the economic part of his task. The latter showed honesty and executive ability in the management of his department, but utter unpreparedness for the peculiar economic problems of Mexico.

The biggest of all Diaz's problems was that of banking. The formation of a Mexican nation, in a modern economic sense, depends on banking. A banking system should create interdependence and promote cooperation among all those who are able to produce goods or render services all over the country; it should be the expression of the faith of the people in the future and the prosperity of their country and in the honesty of their government; it should facilitate the direct interchange of services between persons residing in different regions, thus accelerating circulation, reducing the rate of interest and making possible the enormous expenditures required for the full utilization of our natural resources.

About 1880 there was a move toward establishing banks in Mexico. All of them issued bank notes, but with no uniform plan. The government, with a view to concentrating the power of issuing bank notes in a single institution, in 1884 compelled the two most important banks to merge under the name of Banco Nacional de Mexico, and entered into a contract with this bank for the concentration and redistribution of government funds, for serving the government in connection with the foreign debt, and for opening a credit for it. The government, in turn, bound itself not to accept notes of the various state banks in payment of taxes.

But public opinion, misled by the press, condemned this sound policy of concentration, and when General Diaz came into power again the Banco Nacional was persuaded to modify its contract, leaving the government at liberty to enact the banking law of 1897. By this law the privilege of issuing bank notes was divided between the Banco Nacional, the Banco de Londres and such groups of individuals as should establish the first bank in each individual state. All these banks were given power to issue bank notes to the amount of three times their paid-in capital, with some limitations, and instead of allowing rediscount or any other form of cooperation the law prohibited the state banks from maintaining an office outside their own districts, even to cash their notes.

The banks, therefore, issued as many bank notes as the people could absorb, and lent the money so obtained to such persons as happened to be known to them. The people in general were left a prey to usurers charging 24 per cent or more. Deposits were not solicited, sometimes rejected, and very seldom offered. Nor were payments often made through banks, as, according to the Mexican law, checks are not endorsable. The banks, then, did not assist in organizing the monetary reserves of the country, but rather were agencies of economic disintegration. They were nothing but pawnshops.

After wrecking the old banks, which after all had won the confidence of the people, men are talking now in Mexico of establishing a single large bank with power to issue bank notes; they talk of getting money from the bankers of New York or Paris or elsewhere; and nobody seems to notice that in the meantime the money of Mexicans is rushing from the country looking for safety in foreign banks. Yet it is upon just this money that a really national institution should be based, one which should be safe-guarded and organized for national cooperation. To complete that organization requires honesty, science, labor and gradual evolution. But the Indian mentality understands nothing but immediate magic remedies which can only be practiced by bringing in foreign capital.

If now we look back to that little border town where Mexico and the United States are only separated by a street we may understand why, notwithstanding the similarity of climate, race, religion, and language, we see on one side of the street pitiful poverty, discouragement and laziness, while on the other everything betokens prosperity, optimism and activity. It is not because the people on the Mexican side would not like to have their homes beautiful, their streets well paved, their public buildings lofty and dignified, but because they live as did people in Europe before the creation of modern banking institutions. The money of each individual is kept secreted in his own house. Each thinks of his fellow citizens as economic rivals, without any conception of cooperation in the realm of business. Public works of irrigation, sanitation and transportation call for workers, but there is no way of changing their labor for other values through the medium of banks; all must be done in exchange for cash, and for cash we need to call on foreign investors who cannot have any genuine Mexican aims.

Some might say that the remedy is to increase the number of schools and to enforce the principle of compulsory education. But that suggestion is shallow. Under the geographic and other conditions in which Mexico's population lives, more capital would be required for universal education than the country could afford. We would not even have enough to maintain the police force necessary to compel the Indian children to attend school in their scattered settlements. Besides, an increase in education creates greater ambition, and if the means are not supplied to satisfy that ambition then the natural result will be unrest. On the other hand, an economic betterment brings about a desire for education and a better use of ambition. That was the mistake of General Diaz; during his time the most scientific methods of education were tried, while the economic institutions were in a state of empiricism.

We are paying very highly for that mistake; to correct it will require a great deal of intelligence and devotion. Democracy, as it has been practiced in Mexico for a century, is utterly unable to produce the type of men required for the task. I do not think that government by the majority can be productive of good results in Mexico. Democracy, as it has been understood with us, is the government of a single class--the class of professional politicians, that is to say the class of persons who never have been able to do anything, who as professional or business or agricultural men have been a complete failure. How can men of that character be expected to solve the most complicated varieties of business affecting the welfare of the whole country?

If, according to our conviction, democracy does not suit Mexico, let us have the courage to say so and let us plan how to secure honesty and culture in our national life. Let us part with the principle of equality, which has made Mexico a fool's paradise, and let us confess that the old Spanish system of differentiation and cooperation, each one helping in his own capacity and profession, is right, as it is in accordance with the scientific law of the subdivision of labor.

The treasures of Mexico are great, but not within the reach of every one. The only key to them is that of economics--a science which requires a detailed knowledge of facts and which so far has been overlooked by our rulers, all of whom, save perhaps General Diaz, have thought that science and government are two incompatible things.

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  • T. ESQUIVEL OBREGON, formerly Minister of Finance of Mexico, author of several volumes on the foreign affairs and finance of Mexico, now practicing law in New York
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