Preferred Citation: Lindo-Fuentes, Hector. Weak Foundations: The Economy of El Salvador in the Nineteenth Century 1821-1898. Berkeley:  University of California Press,  c1990 1990. http://ark.cdlib.org/ark:/13030/ft3199n7r3/

Weak Foundations The Economy of El Salvador in the Nineteenth Century Héctor Lindo-Fuentes UNIVERSITY OF CALIFORNIA PRESS Berkeley · Los Angeles · Oxford © 1991 The Regents of the University of California

Preferred Citation: Lindo-Fuentes, Hector. Weak Foundations: The Economy of El Salvador in the Nineteenth Century 1821-1898. Berkeley:  University of California Press,  c1990 1990. http://ark.cdlib.org/ark:/13030/ft3199n7r3/

To the memory of my father.

Acknowledgments

I would not have been able to write this book without "a little help from my friends." Among my helpful friends I must count, first of all, the members of my family. They have helped in more ways than they imagine. I must single out my brother Arturo who provided timely financial support at crucial junctures. Without him this book would have been substantially undernourished. Many in the scholarly community have offered advice and constructive criticism. John Coatsworth at the University of Chicago guided the first version of this material and commented on later revisions. David Rock, S. L. Cline, E. Bradford Burns, Paul Gootenberg, Donald Stevens, Christine Jones, and Knut Walter have commented on various chapters of this work. All the remaining mistakes should be attributed to my stubborn resistance to their generous advice. My students, with their demanding questions, have forced me to think hard. Friendly institutions have offered financial support, leaves of absence, or both: the Ford Foundation, the University of California, and the Universidad Centroamericana José Simeón Cañas. I must also thank the staff of the various libraries and archives where I did my research: Regenstein Library, Newberry Library, Center for Research Libraries, Research Library of the University of Illinois at Urbana-Champaign, New York Public Library, New York Historical Society, National Archives, Library of Congress, UCSB Library, UCLA Library, Biblioteca Nacional de El Salvador, Biblioteca Miguel Angel Gallardo, Biblioteca de la Universidad Centroamericana José Simeón Cañas, Biblioteca Luis Alfaro Durán, Registro de la propiedad de la Sección de occidente, Registro de la propiedad de Ahuachapán,

Public Record Office, British Library, and London Search Room of Companies House. Thanks to all.

Introduction

There are many routes to underdevelopment. This book is about the first steps in route taken by El Salvador, a poor, small, and weak country. The question is, What happens when a small and isolated territory devoted mostly to subsistence agriculture, with about 250,000 inhabitants and a professional class of only four lawyers, four physicians, twelve surgeons, and seven druggists, decides to organize itself as an independent country? Early in the process economic growth became synonymous with the expansion of export agriculture, and sharing the benefits of growth with the population at large was not a topic that deserved serious discussion at the highest levels of government. By the end of the nineteenth century the implications of export-led growth became apparent. The health of the Salvadoran economy was becoming highly dependent on the fate of coffee exports. Changes in the international markets were beyond the control of any Salvadoran but could have an effect on the life of most Salvadorans. At the same time the economic and cultural gap between a small elite and the majority of the population had widened tremendously.

The country's position in the international market was the epitome of the "small-country hypothesis." It could never bargain for the prices of the things that it bought or sold; it had to accept whatever the international economy imposed. The wisdom of increasing exchange with the outside world was seldom questioned. In fact, the quest for free trade was one of the motivations for seeking independence from Spain. Protectionist sentiment in El Salvador was never strong and, after the Gold Rush and the opening of the Panama Railroad, trade along the Pacific

coast rapidly expanded. Throughout history the country's geographical isolation had been the strongest barrier against the expansion of the export sector, and most of El Salvador's international trade had to be taken to the Atlantic coast through a long, rough, and convoluted route. (Needless to say that geographical isolation did nothing to improve the lot of the average inhabitant of the small colonial backwater.) That barrier rapidly crumbled during the second half of the nineteenth century when the Pacific coast of the American continent became a busy trade route. Aware of the opportunities, Salvadoran leaders moved to take advantage of the new situation. There was a consensus that "progress" and exports went together. Little thought was devoted to the dangers of having an economy too dependent on one export product, and little attention was paid to the long-term implications of the changes brought to Salvadoran society by this new phenomenon.

For the leaders of El Salvador the question was how to profit from the new opportunities. Despite all its dangers, and they were many, it was the right question. The new state was not organized enough to effectively police its porous borders or to force anyone to produce anything. Even if someone had tried to impose protectionist legislation it would have been almost impossible to limit the expansion of foreign trade. The temptation of making a fortune from indigo or coffee exports was too great for people to ignore it. It was hard to imagine any action or policy on the part of Salvadoran authorities which could have stopped the expansion of the foreign sector. Any Salvadoran government trying to impose such policies could not stay in power for more than a few months. The only possible question was how to profit from the opportunity and Salvadoran leaders, given the limitations imposed by the sheer scarcity of resources, were successful in this sense.

Not surprisingly, one of the main themes of this book is the way in which the Salvadoran economy was shaped by the increasing importance of exports. In that sense this book describes a story of modest economic growth. It is a discussion of how resources were organized to better adapt to the opportunities offered by the international economy. Changing prices and access to factors of production were important variables that needed to be analyzed in this context. From this point of view nineteenth-century El Salvador was a success story. Salvadoran producers adapted to changes in relative prices and were not timid in their pursuit of profits. Able and hard-working people made fortunes. In contrast with other Latin American countries, it was almost entirely a local effort; economic growth took place without large-scale imports of factors of production. Local entrepreneurs using local resources built the economy, almost from scratch. They made decisions on their own, taking their clues from foreign markets and not from foreign companies or governments.

A key theme in this context is the shift from traditional to modern agriculture. During the first years of independent life the main agricultural products of El Salvador were indigo and food crops, cultivated in exactly the same fashion for at least two hundred years. It was a situation that, following Theodore Schultz, we can call "traditional agriculture." In this form of crop-raising, long experience with the same techniques and endowment of resources make farmers very efficient. "In allocating the resources at their disposal," says Schultz,

"in choosing a combination of crops, in deciding on how and when to cultivate, plant, water, and harvest, and what combination of tools to use with draft animals and simple field equipment—these choices and decisions all embody a fine regard for marginal costs and returns," and therefore farmers "know from experience what their own effort can get out of the land and equipment."^[1]

When traditional agriculture is the main economic activity, children learn from their parents all that is necessary to be efficient producers, and formal schooling has little economic value. Moreover, there is no need to learn how to deal with economic changes other than variations in prices and the weather; it is unnecessary to take into consideration the benefits or the problems of technological change. This situation is upset, however, with the introduction of modern agriculture in which techniques are always changing; and it is essential, therefore, to learn how to rapidly adapt to new situations and constantly reallocate resources. This, together with the economy's need to compete with other countries that were also rapidly improving techniques, was what happened to El Salvador when coffee cultivation was introduced during the second half of the nineteenth century. A new and highly profitable crop had arrived which forced Salvadorans to learn not only a new agricultural technology but also new forms of financing and marketing. Neither experience nor tradition had prepared Salvadorans to deal with the complexities of the coffee business. Under the changed set of circumstances formal education acquired a new economic importance; the ability to identify economic opportunities in a changing world, to learn new techniques, and to constantly reallocate resources was enhanced by formal education. "The presumption is that education," says Schultz,

enhances the ability of students to perceive new classes of problems, to clasify such problems, and to learn ways of solving them. Although the problem solving abilities that students acquire pertain to classroom work, the abilities that are developed by this work seem to have general properties that contribute measurably to their performance as economic agents in perceiving and solving the problems that arise as a consequence of economic changes.^[2]

Starting a coffee plantation was an adventure into the unknown that meant doing things in an entirely new way. Obviously there was an element of risk involved. At the beginning, even those who had some formal education needed an extra measure of courage and imagination to engage in coffee cultivation. Entrepreneurship played an important role. In a clear restatement of the problem of entrepreneurship, Nathaniel Leff provides a useful definition of the term:

Entrepreneurship clearly refers to the capacity for innovation, investment, and activist expansion in new markets, products, and techniques. As such, entrepreneurship may reflect superior information and, perhaps more importantly, imagination, which subjectively reduces the risks and uncertainties of new opportunities that are ignored or rejected by other investors.^[3]

Clearly, in El Salvador those with the capacity for innovation and investment, with access to superior information (and the ability to decode it), or the capacity to imagine the possibilities of a new crop, came from the very small group of people who had access to education. The pool of people from which the entrepreneur could arise was already extremely limited. Thus, the fact that the only rapidly growing sector of the economy was the production of coffee meant that the benefits of growth would only reach a select few.

The expansion of the export sector did not take place in a vacuum. This book shows how the emergence of a powerful oligarchy was the logical consequence of that expansion. International trade transformed Salvadoran society. During the latter half of the century the gates were opened to the outside world and powerful market forces were unleashed. The economy became more productive at the same time that the society became unequal. In the hurry to grow crops for the world market, food production suffered. The benefits of growth were not equally distributed to all Salvadorans. In theory it is not necessarily a bad idea to produce less food and more indigo or coffee if the latter are more profitable activities. But those who previously benefited from food production did not get their share of the benefits of coffee production. Concentrating on exports was not by itself a recipe for disaster. Despite the fluctuations of international prices there was no other economic activity that on average could have competed with coffee in terms of profitability. Moreover, it is very difficult to think of a plausible scenario under which nineteenth-century El Salvador could have grown by expanding production for its local markets. Given the agricultural tradition of the country and the lack of technical skills, it would have been foolish to think about the expansion of industry before exhausting the possibilities of agriculture.

Coffee production became the most profitable economic activity at a time when the institutions of the state were being created. All other things being equal, any movement away from traditional agriculture was bound to increase inequality. All other things, however, did not remain equal. The few educated people who could take advantage of international trade opportunities were also the few educated people who could organize the institutions of the emerging state. What would be the role of the state in the new country? The sheer scarcity of human and material resources together with the ideas of liberalism suggested limited state involvement in the economy, and that involvement was designed to promote exports. Very little was done to enable the majority of the population to take advantage of the opportunities created by international trade. By contrast, those who managed to engage in indigo and coffee production were subsidized by everyone else. Import taxes ultimately paid by consumers financed a transportation system designed to help exporters to take their products to the ports. Most of the budget was used to finance an army that kept order for the benefit of exporters while the educational system remained underfunded. Land policies were designed to favor coffee production. The state was created by and for the emerging oligarchy.

This is a book on the beginnings of a poor country. The idea is to show how its economic foundations were built. (Details of political history are mentioned only when necessary, but the reader is referred to the standard literature when it is deemed appropriate.) As in any history book it was difficult to set the limits for the period to be studied. The choice of a period is always arbitrary, forcing one to establish breaking points where continuities abound. In the nineteenth century, however, the starting point is easy to figure out. The independence from Spain offers one of those rare occasions where the division is clear. From the economic point of view, at least, the end of trade restrictions and the beginning of a period of political instability introduce new themes into the discussion.

So, at least one knows where to start, but where is the end? History offers a seamless fabric, but history writers have a limited lifetime; books have to end somewhere. The cutoff data presents a problem with no clear-cut solution. Three events seem to offer a credible way out: first, the legislation that privatized land (the liberal reforms, 1881–1882) helped to give a permanent shape to the liberal state; second, General Regalado's coup d'etat (1898) started a period of relative stability during which coffee planters ruled the country without surrogates; and finally, the 1932 peasant uprising known as the Matanza represented a dramatic moment when planters and soldiers began sharing power. Each of these events present difficulties as endings of the narrative. Although the liberal reforms had a tremendous symbolic value, when

they are set in the proper context they cease to be a breaking point and become an important step in long process that began much earlier and continued much longer. Choosing the liberal reforms as a cutoff date would be to recognize their status as a "breaking point" that needs to be revised, and it would have been impossible to provide a good idea of how the Salvadoran elite continued the process of consolidation in power. The Regalado coup d'etat, in turn, suffers from lack of dramatism; it was a coup after the first important economic crisis brought about by heavy reliance on coffee exports. Finally, the Matanza was enormously traumatic, but although it was arguably linked to the liberal reforms, it had distinctly non-nineteenth-century elements such as the role of the Great Depression, the influence of Marxist ideology, the political role of radicalized university students, and the role of a rural proletariat. The least dramatic of the three events, Regalado's coup d'etat, was chosen as the cutoff date for this book. In 1898, after a painful economic crisis created by a drop in coffee prices, the planters did not make any attempt to change the course. It was a recognition that, for better or for worse, they could not figure out an alternative, and for the foreseeable future the economic destiny of the country would be linked to the coffee industry and to the coffee elite.

1
Before Independence

In the first decade of the nineteenth century the Intendente Antonio Gutiérrez y Ulloa prepared his Estado General de la Provincia de San Salvador; Reyno de Guatemala (año de 1807) , a comprehensive report on the population and resources of the territory that he ruled.^[1] The data in the report provide what may be the most complete picture of San Salvador in the years that preceded independence. The act of writing the report was significant in itself. During the second half of the eighteenth century the Bourbon reforms had brought a new and more systematic attitude to government. Gutiérrez y Ulloa's work exemplifies that attitude. He estimated the total value of the products of the country (1,796,234 pesos), the production of maize, beans, and indigo, the number of inhabitants (classified by sex, race, and occupation), and the number of bridges and boats. He counted priests and parishes, lawyers and physicians, mules and oxen, and wrote down the names of landowners and their haciendas . His account was remarkable but by no means exhaustive: the range of products included was limited, there was no allowance for clothing or any other manufactured products, and investment, services, imports, and government expenditures were not considered. (Incidentally, Gutiérrez y Ulloa's monetary figures are in pesos. This monetary unit survived the colonial period and was used throughout the nineteenth century. When trade regulations were lifted after independence, the monetary system became quite promiscuous, and pesos from other parts of the continent were used alongside with the few local coins minted during the period of the federation. It was an open economy with a silver standard, in which the central government

had no control of the money supply. Thus, whenever monetary units are mentioned in this work, comparisons are limited to the same time period or, if distant years are compared, an effort is made to provide a sense of the changes in purchasing power.)

One could not regard the intendente's report as an estimate of the national income but only as an account of the most important products and activities. The report, however, provides a snapshot of the changes that the last years of Spanish rule had brought to the intendancy of San Salvador, then a part of the kingdom of Guatemala.

Those changes helped to set the stage for the independence movement. Institutions created by the Bourbon reforms gave a new sense of identity to the local leaders. The creation of the intendancy of San Salvador in 1785, for example, permitted a tighter administration at the same time that it helped to define the boundaries of the future Republic of El Salvador.^[2] Thus, a new sense of belonging was coupled with an increased feeling of the power of the colonial authorities. The new intendancy, small in territory and in population (when independence came in 1821 it had only 250,000 inhabitants),^[3] received more attention than ever. To facilitate its administration the territory was divided into four partidos , which in turn were divided into fifteen subdelegaciones .^[4] Tax collection was improved with the establishment of a subadministration of hacienda in 1786.^[5] The main towns were organized around ayuntamientos that, together with the Montepío de Cosecheros de Añil , a credit institution that served indigo growers, constituted an outlet for the political activities of the local elite.

The promotion of trade, one of the main objectives of the Bourbon reforms, meant, in the case of San Salvador, measures to encourage the production of indigo, the main economic activity of the local elite. The basic idea was not very different from the supply-side economics of the 1980s, although it made more sense. Neglect, high taxes and, more importantly, trade restrictions had limited both output and tax collection capabilities. The reforms were more successful in raising taxes than in encouraging production, but with more resources and a new attitude toward government the state expanded its sphere of influence. The intendentes worked hard to strengthen the administration of justice, organize militias, encourage trade, and carry out public works, as well as bring education, provide health services, secure the food supply, resettle the population, and assess the economic potential of the territory. These changes involved hard work since intendentes had to overcome resistance from different quarters. Most Salvadorans did not welcome the stronger presence of the government in their daily lives. Moreover, the path to prosperity did not last long; the last years of Spanish rule were years of economic depression and political turmoil. But however

limited in their success, the changes that took place at the end of the eighteenth century were a hint of the future.

Indigo, which had been produced in the region since the sixteenth century, became the main export of the province and the economic foundation of its elite. This happened more as a result of increased world demand for natural dyes than of the freer trade environment brought about by the Bourbon reforms, whose role was merely to facilitate the economy's response to external sitmuli. Yet, more flexible trade policies created new options for the indigo merchants. The crown authorized legal commerce with Caribbean ports in 1765, and thirteen years later Cádiz lost its monopoly when other Spanish ports were allowed to do business with the colonies and trade on the Pacific coast was liberalized.

But changes were not limited to trade routes. The attitute toward trade changed in a way that affected every aspect of the business world. There was a spirit of economic renewal, and America was once again a land of economic opportunity. Ambitious young men were eager to travel across the Atlantic to try their luck. Central America received its share, a new breed of Spanish entrepreneurs with links to commercial houses in Cádiz arrived in Guatemala and brought new energy to the economy. They reorganized the indigo market, then in high demand by the expanding textile mills of the industrial revolution. Gaspar Juarros, Martín Barrundia, Gregorio Urruela, José Piñol, and Juan Fermín Aycinena are some of the names associated with this phenomenon. By the end of the century they had established the economically and politically powerful "familias" that controlled most of the Central American trade.^[6] Thanks to their efforts, indigo production became the most dynamic sector of the economy. It was the main link to the outside world. A report on the province of San Salvador written in 1765 describes how:

Many are the fruits produced by the territory of this government, but the one that sustains and enriches its neighbors is indigo, in whose production engage the noble and the commoner, the rich and the poor, some as owners of haciendas and some as their workers.^[7]

By 1800 the director of the Montepío de Cosecheros de Añil was proclaiming proudly that:

Indigo is the most valuable product of the land, it is an important branch of agriculture, industry, and commerce. At harvest time it gives employment to many idle hands that otherwise would have nothing to do. It contributes to the church more than any other product, for worship and support of her ministers. It contributes to cover the expenses of the public treasury

and is the backbone of commerce. After leaving a profit in circulation within this kingdom it is exported ... and it serves as payment for European goods.^[8]

San Salvador produced most of the indigo exported by Central America. In fact, the production figures for the Capitanía General were less than a quarter higher than the province's. Gutiérrez y Ulloa says that in 1807 San Salvador produced 486,990 pounds of the dye with a total value of 669,661 pesos.^[9] This represented 77.71 percent of the total Central American indigo exports for that year.^[10] Indigo was the engine of the market. Its impact on the economy went far beyond the stages of cultivation and processing. Imports were financed with its proceeds, and trade in general was sustained by the income generated by it. The importance of indigo was felt not only in the province of San Salvador but in the whole Capitancy-General of Guatemala. The economic situation of San Salvador was crucial for the prosperity of the rest of the colony. Fluctuations in indigo production or prices affected not only local landowners and laborers but also the entire trade network that started with the local retailers and reached the Guatemalan merchants who controlled the export and import markets. Thus, the profits gained from indigo were essential to finance other sectors of the economy.^[11]

This trend was consolidated throughout the century. There was a downside, however, to excessive reliance on exports, and by the end of the colonial period Salvadorans knew by direct experience its specifics. Interest in indigo diverted attention from the cultivation of food, and the vagaries of international trade led to a serious economic crisis. Shortly before independence Domingo Juarros noted that

[San Salvador's] trade is principally confined to the cultivation of indigo, to which indeed the inhabitants devote their attention almost so exclusively as to neglect the growth of other articles of the first necessity.^[12]

Bourbon Administration

The Bourbon reforms went far beyond trade reform; they also had a direct impact on the organization of government. Colonial authorities began to play a new role as promoters of the economy and organizers of civil life. With the creation of the Intendancy of San Salvador as a new subdivision of the Captaincy-General of Guatemala, the bureaucracy grew, tax collection became more efficient, and more attention was paid to public order. By 1807 the crown employed 212 civilians to administer San Salvador.^[13] Having smaller administrative subdivisions facilitated law-and-order activities.

Public order was one of the key responsibilities of the intendentes. To perform their duties they had an army at their disposal, but it was not a professional force and not very reliable. This army, called the milicia , was formed by ladinos who during their service enjoyed the fuero militar and the right to wear uniforms but who did not have access to positions of command. These were reserved to Spanish officers of the regular army.^[14] The size of the militia was quite variable; by the end of the eighteenth century there were up to 2,916 ladinos in the militias of the intendancy, but in 1807 the number had fallen to 588.^[15] Since the main opposition to Spanish policies came from the more articulate and organized groups, that is, from the ladinos, the strength of the militias was not always reassuring. On an occasion when the intendente Barón de Carondelet felt threatened by the ladino population, he wrote to the captain-general in Guatemala complaining that he was "with only five good rifles, and cannot rely on the militia, composed as it is entirely of ladinos. But, in an extreme situation, we can probably count on the Indians."^[16] In the case of external threats the militias were more useful. Outside enemies, after all, were everybody's enemies, and the international situation at the end of the colonial period hurt the interests of the indigo planters. British pirates, for instance, attacked the port of Acajutla in 1799 and stole 79,000 pounds of indigo.^[17] That kind of behavior affected everyone and had to be deterred.

Concerns with law and order were not new to the colonial system, although the new organization of the intendancies greatly improved them. Direct state involvement in education, by contrast, was a novelty. When the Archbishop Cortás y Larraz visited the parish of San Salvador in 1768 he found that there was "no school, neither in the capital nor in the villages."^[18] To learn how to read and write one had to go to a cleric with time to spare or to a willing relative (assuming that one's relatives were literate). In some towns educational needs would be satisfied by Indian teachers who taught "how to read and write, the method to assist in mass, and church ceremonies to three or four [boys]."^[19] Even the teaching of Catholic doctrine was sorely lacking. Needless to say, there was no university. The only option to acquire higher education was to attend Guatemala's Universidad de San Carlos, a most elitist institution that in 145 years of colonial existence graduated only 460 bachilleres from the entire Central American isthmus.^[20]

When in the 1770s the audiencia of Guatemala issued orders establishing primary schools (escuelas de primeras letras) the first obstacle was to find qualified teachers. Few knew how to read and write, and those who did were people in the higher levels of society who had little inclination to become teachers. Moreover, who would want to go to school? The majority of the population lived in a subsistence economy, and to them schooling had no clear economic advantage. Indian com-

munities actively resisted schools, which they saw as yet another Spanish burden. Alcaldes who wanted to follow the order to introduce schools in their districts faced resistance. In the town of Sonsonate a frustrated alcalde tried to coerce children into going to school, and the audiencia had to advise him that his tactics were counterproductive.^[21] The rural population, unmotivated and sparsely distributed, could not be reached easily. It was best to concentrate efforts in the cities. The Barón de Carondelet provided each barrio of the city of San Salvador with teachers of elementary crafts and primary letters. In 1800 the "Escuela de la República," the first formal school, opened its doors in the capital. Soon after, craft schools began operating in San Salvador, San Vicente, and San Miguel. When in 1803 Archbishop Luis de Peñalver y Cárdenas visited the province he found that only the "Escuela de la República" had a serious teacher, and that the entire intendancy counted only 500 students. Surprisingly, ladinos and Indians did have access to the few schools that existed at the time. Of the 164 students who attended the Escuela de la República, by far the biggest in the country, 56 were Spanish, 91 ladinos, and 17 Indians.^[22] Four years later Gutiérrez y Ulloa found 1,793 students (less than 4 percent of all children) and 88 teachers, but described the state of education as "extremely backward."^[23] The number of students had grown rapidly (if one is ready to trust the numbers), but the starting point was abysmally low and the staying power of the educational effort in constant jeopardy.

Schools were financed, by and large, locally. In 1778 the audiencia had decreed that Indian communities had to pay the salary of the schoolmaster.^[24] (Judging from the results they did not try very hard, but on occasion this new obligation could be used to defend the community funds. In 1804, during the debate around the consolidation of debts, the alcaldes of San Salvador argued that ladino and Indian comunidades needed their funds to maintain schools and pay teachers' salaries.) Just before independence colonial authorities spent an average of 40,778 pesos per year, or 5.63 percent of the budget, on all Central American schools.^[25] Though commendable, the efforts to educate the Salvadoran people heaped a meager harvest. Schools were unstable institutions and opened and closed unpredictably depending on the availability of teachers and the willingness of parents to send their children. The lessons taught in them were of the most elementary nature: reciting and writing prayers, rote memorization, emphasis on penmanship, and little more.^[26] Moreover, lessons were not always learned: in 1804 the school of Zacatecoluca had fifty-nine students and only six knew how to write. The same year the Indian children of Dolores Izalco were reported to have "learned nothing" because of the resistance of their parents to sending them to school.^[27] By the end of the colonial period, the educa-

tional system, if it deserved that name, still languished in a most precarious state. The Salvadoran elite was, in general, remarkably ignorant, and the general population had no use for education. The concern among progressive rulers about education had, however, taken root.

The Spanish authorities proved more effective in their efforts to enforce laws regulating commerce. They focused on small commercial activities as well as on big fairs. Indian participation in the market economy was forced by a 1747 law ordering them to pay their tributes in coin.^[28] Intendentes saw to it that ladinos did not trick Indians by altering weights and measures and that they did not take advantage of them by setting unfair prices.^[29] That was the easy part; the marketing of indigo was a more complicated problem. Indigo, the only crop that could be sold in the world market in significant quantities, was the "soul that gave life to the kingdom [of Guatemala]."^[30] Its production was concentrated in San Salvador and, to a lesser extent, in Guatemala, Nicaragua, and Honduras, but the greatest beneficiaries of the Indigo business were the Guatemalan merchants.^[31] During the second half of the eighteenth century they had developed a system that permitted them to obtain an important share of the indigo market. The merchants were led by a group of Spanish entrepreneurs who had family and business connections with big commercial houses in Cádiz. Through their connections they had access to capital for financing the planters in the provinces, to agents for purchasing European goods that could be sold in the colony, and to ships that arrived at the Gulf of Honduras. It was a package of services that was vastly superior to anything that Central America had ever seen. As a result the Guatemalan merchants were in a privileged position, and they did not hesitate to take advantage of it. By the beginning of the nineteenth century the system was firmly established, together with the political social preeminence of the Guatemalan merchants. The instructions to the Guatemalan delegate to the Cortes de Cádiz describe the system in part.

As to the merchants, there are up to thirty or thirty-five commercial houses in the kingdom deserving that name, being the only ones that every year receive directly from Cádiz through the gulf of Honduras European goods valued at a million pesos, a thousand more a thousand less, which distributed among the merchants are sold retail at their stores. The greater number of the former do their business in the houses that they have by the name of almacenes . The returns are sent in an equal portion of indigo pounds, which is almost the only product that supports trade with the metropolis. These calculations must be taken as an approximation, when the war with the English does not place obstacles to navigation, and when locusts or other misfortunes do not impair the harvest of the dye.^[32]

The system established by the merchants reached producers in the provinces. The latter obtained credit from the former who provided them with the goods and cash necessary to survive until the product was ready for the market. Crown officials in the provinces moonlighted as agents of the merchants; the commercial network was also a network of influence. When indigo was collected and processed, it was sold to the merchants at fairs in Guatemala or, after 1782, in San Salvador, and then exported to Cádiz. By the time of the fairs the producers were so heavily in debt that they had committed almost all their production to the merchants.^[33]

The rapid rise of the Guatemalan merchants and their accumulation of power were early indications of what can happen when the growth of the export sector demands a complex set of skills. The business techniques employed to deal with both local producers and European buyers of indigo were very clever and complex and required knowledge of both sides of the business equation. That kind of knowledge was clearly beyond the majority of the population, and those who had it could profit from it very handsomely. In fact, the Spanish entrepreneurs who arrived in Guatemala during the second half of the eighteenth century had, as their main asset, their skills. They arrived with little capital. Some of them started slowly familiarizing themselves with Guatemala, which they visited first "as shipper-merchants," and "after many trips back and forth between the [Iberian] peninsula and Guatemala they decided to settle for good in the latter."^[34] A change in technology, in this case business technology, created new opportunity for those with special skills. In a region where the educational system was dismal, very few had such skills, and they received enormous rewards for their knowledge.

Mule trains loaded with indigo were sent to Omoa or Trujillo on the Gulf of Honduras, to Acajutla on the Pacific, or to Veracruz, via Oaxaca. The Gulf of Honduras route had definite advantages over the other two. Trade along the Pacific coast developed very slowly, and very few ships visited Acajutla. Before the discovery of gold in California and the construction of the Panama railroad, coasting vessels had little business to do along the northern two-thirds of the Pacific coast. The Veracruz route, long and slow, was a last resort. Its use made sense only if other alternatives were closed due to the activities of privateers.^[35]

The system was open to all sorts of external shocks. Trade routes had to be changed due to the conflicts between England and Spain; credit was crushed by the 1804 credit consolidation decrees and by disruptions in trade. When they were unable to pay their debts many Salvadoran producers lost their land to Guatemalan merchants.^[36] Honduran and

Nicaraguan cattle breeders found themselves under similar circumstances. They supplied the rest of Central America with meat and hides. Hides were an important part of their business since they were used to make zurrones (bales; this word was translated as "seroon" in the nineteenth century) to pack indigo and, therefore, their fate was tied to that of Salvadoran producers. Honduran miners, in turn, had to send their silver to the Guatemalan mint. Although the producers tried to weaken the control of the Guatemalans through contraband, the latter's control of credit and their connection to the main trading houses in Cádiz made this difficult. They provided a valuable service that no one else could offer. Not surprisingly, most of the hostilities after independence were between Salvadorans and Guatemalans.

The growers considered themselves to be victims of the merchants. In 1781 they told the government that the merchants wanted to keep them "in a state of Algerian slavery."^[37] For the Spanish authorities, who were not above "divide and conquer" theories of government, this represented an opening. The colonial authorities tried to favor the Salvadoran producers in order to weaken the powerful merchants. A credit institution was established to help indigo producers. In 1782 Captain-General Matías de Gálvez signed the statutes of the Montepío de Cosecheros de Añil (Indigo Growers Society).^[38] To finance it, the Montepío was endowed with funds from the Royal Tobacco Administration, and a tax on indigo was instituted to provide it with monies on a continuous basis. The initial contribution was 100,000 pesos, and the income per year from the indigo duty ranged between 10,000 and 25,000.^[39] Despite the good intentions of the captain-general, the Montepío never had enough funds to replace the merchants as the main source of credit, and the credit problems of the growers persisted together with their dependence on the Guatemalan merchants.

Prices were as much a problem as credit. The power of the Guatemalan merchants (a highly organized group) to manipulate prices bordered on a monopsony situation and also generated action from the colonial authorities. There were continuous disputes about prices and, at the end of the eighteenth century, the captain-general periodically intervened to fix prices and almost invariably sided with the interests of the Salvadoran producers. The 1772 fair provides a good example of how this operated.

Growers' representatives from San Salvador and San Miguel came to the 1772 fair asking 10 1/2 reales for corte , 12 3/4 for sobresaliente and 15 for flor . San Vicente's delegates wanted higher prices while the merchants proposed to pay 9 1/2, 11 1/2 and 13 1/2 reales, respectively. An arbiter

chosen to settle the conflict recommended the schedule proposed by San Salvador and San Miguel. San Vicente and the merchants continued to protest; but prices of 10 reales, 12 1/2 reales and 15 reales were finally accepted by all parties.^[40]

In 1780 and 1781 the merchants complained that Captain-General Gálvez was fixing prices arbitrarily.^[41] In 1803 the captain-general fixed prices following the recommendations of the Montepío de Cosecheros de Añil. Between 1806 and 1810 the captain-general fixed all prices.^[42] But price-fixing policies did not always achieve their goal of protecting the producers. In 1794 a grower complained that when loans were repaid in indigo he suffered losses of between 10 and 15 percent, a figure similar to the difference between the prices paid by merchants at the annual fair and open market prices.^[43] This suggests that the merchants found ways to circumvent the authorities and that the regulations were, at most, partially successful. At the end, price fixing had to be abandoned.

The reasons why the colonial authorities exerted some control on the indigo market were not necessarily altruistic. The Guatemalan merchants were the most powerful economic force in the colony; they were well organized in Junstas de Comercio and, after 1794, in the Consulado together with their presence in virtually every colonial institution.^[44] It was in the interest of the authorities to weaken them and keep them under control. The merchants controlled import and export markets and had close ties with commercial houses in Cádiz. They were the early beneficiaries of the Bourbon reforms but had become too powerful. Part of their system involved the control of midlevel public officials by paying their sales taxes and tributes. To weaken the power of the merchants, the Spanish authorities excluded them from the deliberations that led to the creation of the Montepío de Cosecheros de Añil, and the indigo fair was moved from Guatemala to San Vicente, in San Salvador province. Despite these attempts, this power conflict was never resolved during the colonial period. The wholesale merchants kept their control of the indigo market, circumvented and even ignored the prices fixed by the authorities, and created new classifications of indigo that enabled them to set their own prices.^[45]

The preceding discussion on the external sector of the colonial economy invites a digression on the role of that sector as an obstacle to the development of Central America. Much has been written about the impact of Spanish taxes and trade restrictions on the economies of the colonies; some versions of dependency theory, for instance, argue that the empire extracted surplus from the colonies and that this is the root of the underdevelopment of the Latin American economies. In the view

of liberal economists, taxes and trade restrictions distorted economic activity and introduced inefficiencies that were an obstacle to growth. These arguments have been supported mainly with evidence from the richest, most important, and more highly taxed colonies—Mexico, Peru, Chile. Central America, being poor in gold and silver, did not have much to be deprived of. Taxes and restrictions were costly, the burdens on labor were painful, but the colonial experience did not bring underdevelopment through international trade mechanisms. Trade was a very small part of the economy; most energies were devoted to subsistence activities.^[46] Indigo was the only viable export for the province of San Salvador, and it suffered more from locust plagues, competition, high transportation costs, and the constant disruptions to trade created by European rivalries than from taxes and regulations. At most, indigo production amounted to 15 percent of the national product of the province of San Salvador, probably much less.^[47] The overwhelming obstacles for the economy were in the acute scarcity of capital, human and physical, and, being located on the Pacific coast when most trade was in the Atlantic, in a less than privileged geographic location. The external sector did, however, play an important role in contributing to the strength of powerful elites who, in turn, worked hard at protecting their privileges.

Bourbon Spain did not profit much from owning Central America. During the late colonial period trade had been revitalized, and it could be expected that revenues would increase. They did, together with expenditures. The revenues of the Capitanía General came from four main sources: the tributo , a head tax imposed on Indians; taxes on internal and foreign trade; its share of the church tithe; and state monopolies of goods such as tobacco, liquor, gunpowder, and playing cards. There were other minor sources of revenue such as the taxes on ice, cock fights, stamped paper, rent of national houses, and the post office.^[48] But that revenue was not enough. The role of government had expanded and needed a larger bureaucracy. The costs of maintaining the colony safe from the British further crushed the illusion of turning it into an asset to the crown. In order to secure the safety of the northern ports the Viceroyalty of New Spain had to subsidize Central America by sending situados . The amount of the situados was between 100,000 and 200,000 pesos a year until they stopped in 1810.^[49] Ordinary military expenditures accounted for 44.20 percent of the budget.^[50] The province of San Salvador did not pay an excessive share of taxes. Between 1790 and 1814 her share of the funds sent to the royal coffers was 12.16 percent, less than her share of the kingdom's population (about 16 percent).^[51] In turn, Central America as a whole had a lighter burden than other parts of the Spanish Empire.^[52]

The last years of Spanish rule were also years of decreasing revenue for the crown.^[53] The capitation tax imposed on Indians was abolished in 1812, partially reinstated in 1814, and abolished in 1820.^[54] In order to promote trade the crown had given up potentially significant sources of income. By the end of the colonial period goods traded to other regions of America were free of duty. Foreign products coming via Panama, a puerto habilitado , did not pay taxes either. Nor did Asian goods coming from Mexico. Many products were exempt from the interior alcabala tax: cochineal and indigo when transported by the growers; cocoa, coffee, indigo, and sugar when produced on newly cultivated land; meat and tobacco. That is, taxes did not impose a heavy burden upon foreign trade; few articles paid duties. Alcabala taxes on other products (presumably internal production) did make an important contribution to colonial revenues. From 1812 to 1817 the average annual revenue collected from alcabala taxes was 157,681 pesos. Between 1815 and 1819 the alcabala accounted for 22.7 percent of the total revenue. The tobacco monopoly was a better source of revenue; during the same period the average contribution of tobacco to the colonial coffers was 54.3 percent.^[55] Revenue was spent inside the colony. Another form of taxation, forced labor in public works, was used in projects that were meant to benefit the colony at large. Barón de Carondelet built new jails and the waterworks of San Salvador by forcing the barrios of the city to provide the labor force.^[56]

In emergencies the crown found ways to squeeze funds out of the colony. After declaring war on England in 1804 Spain decreed the consolidation of church debts. In practical terms it meant that the church had to call all outstanding loans and deposit the funds in especially created Cajas de Consolidación . The decree was far reaching since the Catholic church and institutions sponsored by her had become important lenders. The decree affected private capellanías , convents, monasteries, hospitals, schools, and comunidades de ladinos e indios . The comunidades contributed at least a quarter of a million pesos.^[57] Central America raised through these means at least 1,250,000 pesos, approximately the same as the value of one year of indigo exports. The contribution of San Salvador was substantial. In 1807, one year before the end of the consolidation, the local Junta de Consolidación had 590,376 pesos on its books.^[58] The economy was seriously disrupted. As currency was scarce barter became more common. Indigo planters had to mortgage their properties, and the resources of the Montepío de Cosecheros de Añil were diverted. In order to pay the principal of its debts, the Arce family, prominent in the indigo business (and later in the independence movement), had to borrow 22,000 pesos from the Montepío and 10,900 pesos from a prominent Spanish merchant.^[59]

At the end of the colonial period the burdens of being a Spanish colony were not so much in the high taxes or even in the trade restrictions but in the dangers of being linked to a metropolis that was in a constant state of war. The 1804 consolidation, the excessive military expenditures, and the constant disruptions to international trade made it very costly to be a colony. Indigo producers were particularly hurt by this state of affairs.

Labor, Land, and Entrepreneurs

The economy was largely agricultural; most people lived and worked in the countryside. In Gutiérrez y Ulloa's report only 5,891 people were counted as occupied in nonagricultural activities. Most of them were either weavers (1,803), peddlers (1,738), or colonial employees (785). Nonagricultural activities were few and demanded only the most basic skills. Gutiérrez y Ulloa classified only twelve kinds of trades—weavers, hatmakers, bakers, blacksmiths, musicians, carpenters, shoemakers, tailors, construction workers, silversmiths, dyers, and painters—which provided for the simple necessities of colonial life. Moreover, it is quite possible that even skilled laborers spent some of their time working in agricultural activities. With such small numbers of artisans, most manufactures had to be imported, but foreign goods were scarce and expensive. As Barón de Carondelet complained,

In all America there is probably no city as high-priced as San Salvador, for all items of general consumption. Its long distance from the Atlantic makes it necessary to bring wine, oil, and other European goods over here through Guatemala. [In that city] they change hands at a high profit to the merchants. So when they are transshipped to San Salvador, there is an added expense of sixty leagues' transport cost, in addition to the alcabala. Next, the local merchant takes his cut in retail sales, so that the end results are excessive price levels.^[60]

It is worth mentioning that Barón de Carondelet expressed his dissatisfaction with Salvadoran prices as an argument to ask for a pay raise. Yet, there is no question about the isolation of the economy and the steep costs involved in transporting goods. The barón's comments also shed light on the demand side of the market. Demand for manufactured goods was so small that despite their high prices the stimulus was not enough for the creation of a small local industry. In fact, very few people were in a position of consuming European goods. The professional class was tiny, it included 4 lawyers, 4 physicians, 12 surgeons, and 7 druggists. The main city, San Salvador, had less than 15,000 inhabitants,

614 of whom were Spanish.^[61] The fact is that the economy was overwhelmingly rural and, by and large, devoted to subsistence agriculture.

The main exception to the overwhelmingly agricultural character of the economy was mining, iron in particular, which showed some dynamism, particularly in years when imports were impossible.^[62] Iron mining had started in Metapán, in the northwest, at the end of the seventeenth century.^[63] Although its existence was precarious and it faced the usual obstacles of lack of capital and technology, and a tiny market, it was the most advanced sector of the economy. Its importance should not be exaggerated, however. Mine owners, by and large Spanish immigrants with limited knowledge of mining, had to engage in other business activities in order to survive.^[64] Production fluctuated widely; in a good year, like 1806, production reached the mark of 1,000 quintales, whereas a bad year could mean no production at all. There was some value added; the average production of steel between 1803 and 1820 was 3,335 pounds, and by 1807 there were 45 blacksmiths operating in Metapán and 219 in the city of San Salvador.^[65]

There are no explicit data on how many people were employed in mining. Gutiérrez y Ulloa has no separate category for miners, which may suggest that it was not a full-time activity and that people who worked in the mines were classified under their main occupation, that is, jornaleros . The population of the district (4,203 inhabitants), however, had a completely different composition than in the rest of the country. It had the highest percentage of Spaniards (37.61 percent as opposed to the province average of 2.86) and the lowest of Indians (10.99 percent versus 43.06). Since Metapán's indigo production was not particularly prosperous, one can infer that iron mining was mainly a white and mestizo activity and that it was attractive enough to concentrate one-third of the Spanish population in a very small region.^[66] Iron mining was the most sophisticated economic activity, however low the level of technology employed. Unfortunately, the skills that were developed in iron mining were completely irrelevant after independence once the door was opened to foreign imports, and there was not a chance that the local production could compete.

Silver mining was a relatively late and unsuccessful development. Silver was discovered in the northeast of the province (near Gotera) in 1781. Excited with the prospects Captain-General Gálvez lent money to Domingo Sánchez Espino, the miner who had made the discovery, and granted him a repartimiento of 200 Indians. The inhabitants of the region opposed the arrangement rather strenuously, and by 1793 the mine was shutting down for want of labor.^[67]

Agriculture was, by far, the main employer. But in the countryside, too, labor was chronically scarce, although the peculiarities of indigo

production made it possible to keep a certain balance. Harvest time was the main period when indigo entered into open competition for labor. Only then were large groups of people mobilized for indigo production. During the harvest in late September and October, and in November, the month of the fairs, indigo was the main preoccupation of Salvadorans. All other activities came to a halt in order to satisfy its needs. During the early 1800s Salvadorans are said to have concentrated so much on the production of indigo "as to neglect the growth of other articles of first necessity," presumably food.^[68] The strain was felt at every level of Salvadoran society. For the small elite it created a serious conflict. Since very few people had administrative skills, they had to wear many hats: they were public officials, retail merchants, and indigo planters. At the end of the rainy season they had to emphasize the latter role. All the officials of the Alcaldía de San Salvador were involved in the harvest in some way or another and had to ask the authorities in Guatemala for permission to abandon their posts. Priorities had to be established, and they chose to perform their public duties from their estates since they had to be present to supervise the harvest.^[69] The result was that the local government was paralyzed during the months of the harvest. This highlights another major bottleneck of the economy: the scarcity of entrepreneurial talent. From the point of view of the labor force it was also necessary to bend the rules. People engaged in the harvest could ask to be exempt from jail sentences.^[70] Not only was production of food and other articles of basic consumption neglected for the sake of indigo, but the administration of justice and the normal performance of municipal duties suffered as well.

The peculiarities of the production of indigo and the small size of the nonagricultural sector of the economy shaped the organization of agricultural labor. The agricultural techniques used to produce indigo were very simple. Land was not even plowed. The ground (preferably located in a warm area) had to be cleared and the brushwood burned sometime in February or early March, before the beginning of the rainy season. Then, in March, the seed (which resembled that of mustard) was broadcast over the ashes. Sometimes cattle were brought to the fields to break the ground and mix the soil and the seeds with their feet. When the planter was late in clearing the ground he had to plow lightly, broadcast the seed, and wait for the rain to pack it. Weeding, when done, took place between April and June and again in August. By the end of September or the beginning of October, when the rainy season was almost over, the buds were about to open and the leaves were rich in indigo. The jiquilite leaves were cut four inches above the ground, tied in bundles, and taken to the obraje for processing. Although the indigo plant or jiquilite was a perennial, it was most productive in its second

and third years after which the land was cleared and the process started all over again. The cultivation of indigo falls clearly within the category of "traditional agriculture" as defined by the economist Theodore Schultz. Agricultural methods had remained unchanged for such a long time that they had reached the fixed state at which, given the level of technology, resources are used most efficiently and people know how to adapt to changes in the market and in the climate. This reasoning also applies to the processing of the dye, which saw little change over the centuries.

Collecting the leaves and processing them required considerable amounts of manpower. Two large brick tanks of about four square meters were used to process indigo for the market. The leaves were left to ferment in the first tank until their color turned light green. This stage took about ten or twelve hours. The fermented liquid was then transferred to the second tank. It was most important to make the transfer when the fermentation had reached the optimum level. The puntero , the person who made this crucial decision, checked the liquid often until he was certain that the right level of fermentation had been reached. In the second tank the fermented liquid was stirred by hand or by horse power while its color gradually changed to light blue and then to a darker blue. Throughout the process the fermented leaves expelled an unpleasant odor and attracted flies. After much stirring under the hot sun the hard labor of the workers was rewarded when a purplish sediment sank to the bottom of the tank and the water became clear. Then it was only a matter of draining the water and letting the sediment (a purple-colored mud) dry under the sun. The final product, looking like a porous piece of purple-blue plaster, was packed in leather "seroons." Once filled with indigo each seroon weighed 150 pounds.^[71] The seroons, simple leather bags lined with a straw mat, were perfectly suited to be carried by mules. Each mule carried two seroons, one on each side.

Once the season was over most people (that is, those who were not merchants or owners of haciendas) could forget about indigo. They went back to the tierras comunales, ejidos , and small holdings to engage in subsistence agriculture and petty manufactures, and the haciendas themselves again became sleepy places devoted to the production of foodstuffs and to raising cattle. Competition for labor was high again during the planting season of corn in February and March, which coincided with the planting season of jiquilite.^[72] But the situation was not as bad as in the last quarter of the year because not all jiquilite had to be replanted the same year and planting did not demand as much labor as harvesting. In fact, indigo production did not call for a social organization unrelated to the rest of the economic activities. It required only temporary arrangements during three months of every year. The ten-

sions between the market and nonmarket sectors of the economy were eased by this feature. Labor was scarce indeed, but the export sector put pressure on it at most during one quarter of the year. The strains on the social fabric did not have to be permanent.

Institutions like debt peonage, so important in other parts of the continent, did not flourish. The repartimiento system was very well suited to satisfy the labor needs of the indigo producer during the harvest season. During the hectic month of the harvest a variety of labor arrangements were available. The producer of six pounds of indigo per year obviously did not hire outside labor, whereas the large producer was forced to do so. Small growers could rely on their families or on the cooperation of their neighbors to obtain the help needed to grow and process indigo. Large producers needed more labor and, therefore, had to use different arrangements. To satisfy their needs, they employed slaves, wage labor, repartimiento Indians, tenants, share croppers, or a combination thereof.^[73] Labor shortages had been a common complaint throughout the eighteenth century. At the beginning of that century the crown prohibited the employment of Indians in the production of indigo, but avoiding this prohibition was not unusual.^[74] However, the prohibition was lifted in 1737 and the use of repartimiento Indians became widespread. A document signed by the Alcalde Mayor de San Salvador provides an idea of the use of this institution. It shows the amounts of Indian labor allocated in 1785 under the repartimiento system.^[75] According to the document 3,284 Indians were assigned to 78 indigo haciendas distributed all over the territory of the province. These numbers suggest that the availability of labor through this system was not the same for all producers. The alcaldes mayores, who were in charge of allocating Indian laborers to the various producers, were involved in the business themselves. The consequence of this arrangement was that those who held official appointments or were closely connected with the bureaucracy had better access to Indian labor. In fact, only big hacienda owners received the services of repartimiento Indians whereas the small producers had to find labor wherever they could. Thus, the scarcity of labor went hand in hand with unequal access to it. The existence of peones acasillados (resident workers) did not solve the labor shortage because these workers were too few in number. The cultivation of indigo did not require constant attention and, therefore, it was not necessary to secure a year-round labor force of any size. Incidentally, this also explains why slavery was not an important institution. In a time when capital was scarce, it was not a good idea to invest in slaves who would be fully employed only a few months every year. Wage labor was the only other category of labor available in large numbers, but it was not a dependable solution. Free laborers knew that they

were in the best bargaining position and took advantage of it. It was a recurrent complaint that they received wages in advance and then did not show up to work.^[76]

The living conditions of agricultural labor are hard to assess. Working in indigo obrajes was most unpleasant. The process involved the fermentation of jiquilite leaves that turned fetid, released gases, and attracted clouds of flies. The rewards for agricultural work were meager. There is no precise information on food intake. One can make educated guesses by looking at the information available on food production, assessing its reliability, and comparing it to other countries. Gutiérrez y Ulloa's figures for the province of San Salvador give a per-capita consumption of maize of 80.82 kilograms, an amount that seems small when compared to data available for Mexico during roughly the same period. Harry Cross estimated the consumption of maize by peasants of a Mexican hacienda in the middle of the nineteenth century, and using his data it is possible to estimate a yearly per-capita consumption of maize of 156.11 kilograms, almost twice as much as in the Salvadoran case.^[77] It is also known that the average consumption for all Mexico during the period 1800–1810 was 133 kilograms. There are also data on consumption in Mexico City.^[78] The lowest average consumption recorded is that of 1823, only 46.6 kilograms, a smaller figure than the intendente's, but the Mexican datum cannot be taken at face value. The consumption in Mexico City in 1822 had been 102 kilograms, and in 1824 it was 96.2 kilograms. This suggests that the consumption of 1823 was extraordinarily low and was probably complemented with maize stored from the previous year. Also, the European/criollo population of Mexico City ate wheat. The above comparison does not make it impossible to accept Gutiérrez y Ulloa's figure, but does suggest that it is a low estimate and that there are reasons to believe that the Salvadoran peasant ate less maize than his or her Mexican counterpart.

The fact that labor was ill rewarded even though it was scarce points out one of the main characteristics of the economy of the province: its very low productivity. This is not surprising given the lack of capital and the difficulties in trade that will be discussed later. Moreover, the use of coercion further depressed salaries. The main features of the labor force at this time were its scarcity, the seasonality of labor requirements, its low productivity, and the presence of coercion. There were mechanisms that eased the problems. Indigo production imposed a rhythm of life that alleviated tensions. During harvest time there was tension between town and country, between subsistence and market agriculture. Individuals had to change their roles. Public officials became producers, subsistence farmers became hired or forced laborers, producers of food became producers of cash crops. At the end of the season, however,

everything went back to normal. The jiquilite plants were left in the fields to grow their new leaves undisturbed. Labor, land, and landlord came together in the haciendas. There were somewhere between four and five hundred haciendas in the territory of the province.^[79] The organization of indigo production was not uniform across the province. Haciendas had very different sizes, and labor arrangements varied widely. Indigo was produced by both small and large growers. The reports of the tithe collectors of the partidos of Tejutla, Suchitoto, and San Vicente in 1804 give an idea of the differences in the relative importance of the producers. Table 1 shows that there were many more small producers than large producers. According to the tithe data 62 percent of the producers had an output of less than 100 pounds whereas only 10 percent had an output of more than 1,000 pounds. This result is consistent with the estimate made in 1782 by exporters of indigo who figured that the planters whose output was between 6 and 100 pounds per year accounted for approximately two-thirds of the producers, and the rest of the production was in the hands of the large landowners who produced thousands of pounds every year.^[80] The inequality was quite marked. Although indigo production was not necessarily synonymous with wealth, wealth was almost always synonymous with indigo production. This was true for a long period of time, and in the middle of the nineteenth century it was still the case. From this fact it can be inferred that there were no economies of scale in indigo production. The sheer size of the productive unit did not deter-

mine its profitability; the persistence of small units indicates that they were profitable. The geographic distribution of indigo production was more even than the interpersonal distribution. All the partidos of the province produced indigo (see table 2). Furthermore, most of them produced a significant amount of the dye. The two most productive partidos produced 27 percent of the indigo, and their population was 11.4 percent of the total of the province. The five most productive partidos produced 55.96 percent, and their population was 48.9 percent. Even though productivity was uneven, indigo production was distributed across the country following the same pattern as the distribution of the population. Production per head ranged between 0.36 to 7.6 pounds while the average was 2.96 pounds. Indigo was important in every corner of the country.

Salvadoran haciendas produced indigo for the world market and foodstuffs for the local market and self-consumption. Since the nonagricultural sector was small the local markets for food were limited. There was no industry to speak of, no major mines, no big cities. The towns were closely connected to and highly dependent on agricultural production. The haciendas had cattle and produced a little maize, beans, and

indigo. Cattle raising was important not only for the meat but also because indigo was shipped in leather seroons, thus the demand for hides was high. Cattle was both raised locally and imported from Honduras.^[81] People who lived in the hacienda all year round devoted most of their time to food crops, both for their own subsistence and for the market, to feed the urban population. The population figures given by Gutiérrez y Ulloa in his report throw some light on the importance of the urban market. Gutiérrez y Ulloa classifies people according to their occupations. As mentioned above, only 5,891 people worked in activities outside of agriculture. This figure includes craftsmen who devoted part of their time to agricultural activities. Using this figure it is possible to find a high estimate of the surplus that had to be extracted from the agricultural sector. The average family size, according to the intendente's data, was 4.08, so, if only the head of the family worked, the total number of people who lived outside agriculture would have been 24,035. This means that, at most, only 15 percent of the population had to be supported by the surplus of the agricultural sector. There are many reasons why this is a high estimate. First, as has been noted, some craftsmen were also peasants. Second, Gutiérrez y Ulloa probably undercounted the number of people who lived in the countryside. (The head tax gave Indians an incentive to hide whenever heads were counted.) In any case, even if the haciendas were the only suppliers of food to the cities, the demand for year-round labor in the haciendas could not have been very high. Moreover, haciendas were not the only suppliers of food; Indian comunidades were important competitors in that market. The majority of the population was engaged in subsistence agriculture outside the haciendas. During the period of the indigo harvest they had to be brought in.

Besides the haciendas the main productive units were the ejidos and the communal lands. The ejidos were lands allocated to the municipalities so that each town had land for future expansion, for cultivation of food crops, and for pasture. The communal lands were assigned to the Indian communities for them to grow food. There was often confusion about the difference between the status of both kinds of land, although it is clear that they were not private property and were managed in a communal fashion. During the colonial period and well into the nineteenth century there were terrenos baldíos , land owned by the state which was kept uncultivated. It is not clear how much land can be included in each of the four categories described above. Browning estimates that haciendas comprised about one-third of the territory of the province, but he is less specific about the other forms of land tenure.^[82] It is clear, however, that land was abundant and that haciendas were only one among many different forms of land tenure. In fact, much land

remained unclaimed in the form of terrenos baldíos. This land was not claimed for production until the second half of the nineteenth century when the national government offered it for sale and even gave it away. By that time land was becoming scarce due to the entirely new set of circumstances brought about by the increase in trade along the Pacific coast.

Capital, in contrast, was a relatively scarce resource. This situation, together with colonial regulations, helped to determine the merchant-controlled system of financing described above. The financing of indigo became the primary market activity around which gravitated all others. Until 1782 the Guatemalan merchants were the main source of credit for the indigo producers. The merchants supplied loans of an estimated 1 million pesos per year in clothing and other merchandise and in cash.^[83] These loans were meant to sustain the growers until the crop, which was pledged as collateral, was ready, and they amouted to the value of almost the entire crop at local fair prices. Captain-General Matías de Gálvez devoted his attention to the plight of the indigo growers. He was concerned with the fact that "rare is the indigo grower who does not have his growing crop mortgaged to the merchant, and for this advance it is common practice to pay one real less [per pound] than the price at the fair."^[84] The average price of the best quality of indigo between 1779 and 1783, the years of Gálvez's tenure, was 13.6 reales per pound, and the average price of the worst quality was 8.1 pesos. This suggests that the interest rates charged by the merchants were, at least, between 7.4 percent and 12.3 percent. This was only part of the effective rate because the goods advanced as part of the loan were "so exorbitantly priced that all the growers of indigo are hombres perdidos !"^[85] Financial capital was scarce, and the growers had to pay dearly for it.

The response of the captain-general was to create the Montepío de Cosecheros de Añil. One of the main problems of the Montepío was the high rate of default. What was meant to be an institution for seasonal credit became a long-term lender. Borrowers repaid only one-fourth of their loans plus interest every year. They defended the practice arguing that it allowed them to make necessary investments.^[86] The capacity of the Montepío to have an impact on seasonal credit and free the growers from the merchants eroded rapidly. Notwithstanding this problem, the Montepio did have a certain impact. The bitter opposition of the merchants and the strong support of the growers for the survival of the Montepio prove this point. When in 1794 the governor conducted an inquiry to determine the future of the Montepío he asked for the opinions of the different groups affected, and the reactions of such groups were what could be expected. For the merchants, who were not only lenders but also exporters of the dye, it was impossible to see the benefits of the

Montepío, and they recommended its abolition. For the growers and provincial merchants the importance of the services rendered by the Montepío was very clear, and hence they recommended its continuation, albeit with some organizational changes^[87] . But from then on the economic situation of the economy eroded rapidly. First trade with Spain was interrupted and later, in 1804, Spain decreed the consolidation of church debts. With that decree one of the main alternatives to merchant credit was practically eliminated. Moreover, the decree put pressure on indigo planters who used their influence to obtain loans from the Montepío to pay the principal of what they owed to the church. By the time of independence the average loan was seven years' delinquent in payment of interest.^[88] The church and the Montepío were crippled as lenders, and after independence the conditions that had given an advantage to the Guatemalan merchants dissipated. As a result, the colonial period left a weak legacy of credit institutions.

The Marketing of Indigo

Getting indigo out to the market was not an easy task. Indigo cultivation took place on the coast of the Pacific while most trade took place across the Atlantic. In the absence of decent roads it had to be transported on mule trains all the way to the Gulf of Honduras. In normal times most indigo would be exported via the Bodegas del Golfo Dulce although the ports of Omoa and Trujillo were also used (for legal trade as well as for contraband).^[89] If the British threat was deemed too great indigo would be sent to Veracruz. The turn of the century was dismal in this respect. For four years, between 1798 and 1801, indigo had to be sent to Veracruz where it was stored until it could finally be exported in 1802.^[90] Again in 1806 almost 93 percent of the crop was exported via Veracruz.^[91] Every year two or three ships visited the Pacific port of Acajutla bringing wine, oil, olives, raisins, almonds, and silver bullion from Valparaíso, Callao, or Guayaquil and returning to their ports loaded with indigo. Overall the Pacific trade never amounted to more than 15 percent of the crop.^[92]

Getting the indigo to the coast and through customs was not an easy task. The litany of requirements, taxes, contributions, and transportation problems tried the patience of planters and merchants even more than the patience of those who read about it. After the fairs indigo was brought to Guatemala, taken out of the leather seroons, dried, weighed, marked with a hot iron, wrapped in a straw mat, and packed in a new seroon. Taxes had to be paid: 4 pesos per seroon as a contribution to the Montepío, 4 percent tithe, 4 percent alcabala, 1 percent avería , 1/2 real

for every 25 pounds for entering customs, and 1 peso for storage. If shipped via Veracruz a 9-percent alcabala and other minor taxes had to be added. Once in Cádiz it was necessary to pay for customs, give a contribution to the Consulado, pay a fee for protection, and another fee to cross the Guadalquivir canal. All in all, fees, taxes, and contributions added about 25 percent to the initial price. On top of that one has to add transportation costs and interests. This last item was significant since money was tied up for a long time before the merchant could see his return. Mule trains were slow and expensive. Each mule carried two seroons and charged about one real per day. It took at least forty days from San Salvador to Golfo Dulce and at least two months from Golfo Dulce to Europe. If the mule train did not arrive at Golfo Dulce before the end of June, it had to wait until October to be shipped since no ships were available in the interim. In wartime indigo might be stored for years before it could be shipped.

Overall, the economy suffered more from the uncertainties of the world markets, the generalized warfare in Europe, and the predatory activities of British pirates than from the actions of the colonial authorities. The last years of Spanish rule magnified all these problems. The decline of indigo production began at the end of the eighteenth century. When trade was interrupted in 1798 and the crop had to be sent to Veracruz expenses began to rise. Four entire crops had to be stored before shipments were resumed in 1802. There was no relief; at the same time that indigo was finally leaving for Europe locusts were destroying the harvest and competition from Venezuelan and Indian indigo was being felt.

The Napoleonic wars had a negative impact on the Spanish economy and disrupted trade with the colonies. Demand for indigo fell to a fraction of what it had been in the past. José Cecilio del Valle, a Central American statesman, mentions the activity of pirates and privateers as one of the major reasons for the decrease in trade.^[93] To make matters worse England raised tariffs to protect her empire. Since 1819 non-Bengali indigo had to pay more than two times the 1798 tariff.^[94] The average production between 1791 and 1800 for all Central America was 875,256 pounds, and between 1809 and 1818, 459,407 pounds.^[95] After independence the new authorities, worried about this situation, appointed a commission to study the economic conditions of Central America. The commission found that

in the five years that preceded independence, our trade was the saddest.... The [indigo] crop once was eight thousand and five hundred seroons; but in the five years that preceded independence the estimate is quite different; it was reduced to only four thousand seroons; or 600,000 pounds.^[96]

Although these figures do not coincide with those of table 3, the impression of a general decay is common to both sets of data. Despite its decline, indigo was not abandoned, it was the only product that the province could export in large amounts. The local elite had already acquired a taste for foreign goods and was not about to forget them. The economy was beginning to open to foreign markets, and the change was permanent. Although the province of San Salvador had a largely subsistence economy and the majority of the population was not directly affected by the indigo market, the elite did feel the full impact of the crisis. Their livelihood was seriously threatened. Salvadoran farmers lost their mortgaged property to Guatemalan merchants.^[97] It is undeniable that indigo was important for the economy, but the significance of this crop lay more in the fact that it was the main source of income of the ruling class and its link to the world economy. The indigo market was their measuring rod for the performance of the economy. Import merchants, bureaucrats, peasants who worked in the production of the dye, muleteers, peddlers, craftsmen, builders, and all others whose economic well-being was linked to the market economy had their future tied to indigo. The most articulate groups in Salvadoran society, the better educated and organized, those who could influence decisions, saw indigo as the main source of economic prosperity. Moreover, even though this elite lived mainly in the larger towns, its influence spread all over the province.

Indigo was produced everywhere and indigo producers ruled the municipalities throughout the colony. The economic well-being of the kingdom was identified with the economic well-being of its elite. Even if the food crops had an exceptional season and the lot of the impoverished peasant improved dramatically, a bad harvest of indigo was enough to convince the elite that the year had been bad for the colony as a whole. For the local authorities the fate of the elite was the same as the fate of the province.

The market and subsistence economies were not isolated from each other. Theirs was not a very close marriage, but they were not divorced. Indian communities that produced subsistence goods on their communal lands also rented part of their holdings for commercial crops or produced them by themselves. Peasants who tilled the fields of the ejidos and communal lands were recruited by the indigo haciendas during harvest time. It is quite possible that depressions in the indigo market benefited peasants since a smaller indigo harvest meant less demand for their services and therefore more time to spend on their own crops. The smallness of the province and the spread of indigo production made it virtually impossible for any community to remain insulated from changes in the international markets. Indigo production shaped perceptions and helped to define social groups and their motivations.

The trade crisis affected the functioning of government. During the last years of colonial life the Captaincy-General's average annual deficit was 92,743 pesos and the Real Hacienda had liabilities of over 2 million pesos.^[98] (The average annual revenue for the period 1816–1820 was 251,855 pesos.) By 1821 the system of public finance "was labouring under a perfect state of paralysis."^[99] Marcial Zebadua, minister in the first federal cabinet, wrote that by the time of independence public revenues were in a state of "absolute ruin."^[100] Miles Wortman, in a careful analysis of government revenue as an indicator of the Central American economy during the colonial period, concludes that "the trend in declining revenue is fairly constant throughout the region."^[101]

Conclusion

The resources of the Salvadoran economy were few and unevenly distributed. A small elite controlled the export sector, but even they had a hard time keeping their share. They saw themselves as victims of the Guatemalan merchants whose control of the credit market provided them with the key to control producers. Merchants with excellent contacts with commercial houses in Cádiz, knowledge of international trading practices, entrepreneurial ability, and a competitive attitude—a set

of qualities unavailable to Salvadoran producers—mastered the system. Even with the open support of colonial authorities producers did not find easy ways to circumvent their control. Conflict between Salvadoran producers and Guatemalan merchants was bound to escalate.

A small number of Salvadoran producers, in turn, had the edge within the province thanks to their better education and political influence. Having friends in high places (or being in a high place) made it possible to obtain ever scarce laborers. Managing a large plantation required the ability to discipline a large labor force, and the handling of credit operations required not only administrative capacity but also good connections with the Montepío de Cosecheros de Añil and the Guatemalan merchants. Only a handful of individuals shared these characteristics, and there was no easy mechanism to expand the circle. Inequality begat inequality. No avenues for advancement existed, schools served only the elite, only Spanish and criollos could belong to the tiny officers corps in the army, and, beyond the indigo market, business opportunities were nil.

The colonial period ended on a sour note. The attempts to introduce the Bourbon reforms and the depression at the end of the period stirred up animosities between merchants and indigo growers. The failure of the colonial government to deal with these tensions was apparent. Spain itself, victim of the Napoleonic wars and of acute internal tensions, provided weak and erratic leadership. Local authorities, facing a shortage of revenue, did not command the resources to impose their authority. For the more conservative elements of the colony the virtual vacuum of power in the center of the Spanish colonial system was a potential threat to their interests. For the advocates of free trade the colonial government was an obstacle to their projects of eliminating trade restrictions. The colonial period was coming to an end, and the dominant groups of Central American society had to be ready to replace the Spanish authorities and to advance their interests in whatever new political entity was to come. A divided Central America and an ill-prepared province of San Salvador were about to become independent.

The smallness of the colonial bequest is key to understanding the limited choices available to the future country. When the Spanish left, the province of San Salvador had land, a few tools, a very small population devoted to subsistence agriculture, and a tiny elite devoted to indigo production. The problem was not only a matter of having limited factors of production, or being the victim of outdated trade regulations, it was, first of all, a problem of being unprepared to deal with the abrupt changes that were about to come. The low levels of formal education that existed during the colonial period were not a serious obstacle as long as the main business of the land remained traditional agriculture.

But technological change was taking place in the rest of the world, and it was impossible to remain in relative isolation for much longer. With freer trade and wider contacts with the international economy, Salvadorans had to compete by adopting new technologies (mainly coffee cultivation and new business practices) and by constantly reallocating resources to adapt to change. In that new world those with a measure of education would be the only ones with the capacity to adapt and take full advantage of the new opportunities that were about to open.

2
The Shattered Dreams of Independence

Independence came without war in 1821. Although the burdens of being a colony were removed (the trade regulations, the high taxes, the problems of being part of an empire that was all too often at war), the burdens of being independent remained to be discovered. The future of the former province of San Salvador remained linked to that of the rest of Central America until 1839. In the first years the leaders of the independence movement tried to organize the state with empty coffers and without a consensus. Under those less than auspicious circumstances a Mexican invasion interrupted the process. In the end the Mexican adventure was just an interruption, and, when Emperor Iturbide's troops left, Central American authorities started again to try to do the things that independent countries were supposed to do. From the economic point of view the first task was to implement a liberal program. Burdensome regulations were removed, part by design and part by weakness; it was laissez-faire by default. Even when the authorities tried to enforce trade taxes they did not have the organization or the power to get much accomplished. With foreign goods flooding the markets, there was a feeling of change, even prosperity. But prosperity was not painless; inexpensive imports hurt many craftsmen, and the elimination of colonial taxes made it impossible for the federal authorities to raise enough revenue to organize their affairs. Many lessons had to be learned before a modicum of stability could be achieved. Old and new conflicts within the newly created United Provinces of Central America led to a long and costly period of civil war that ended with the partition of the region into five small independent states.

The Hopes of Independence

No armed struggle was necessary to end colonial rule; the Spaniards were too busy trying to retain Mexico and its wealth to pay much attention to the poor region of Central America. For the civic leaders of the colony the outcome of the war in Mexico was crucial. The success of the Plan de Iguala helped to decide the fate of future relations with Spain. In the words of Manuel Montúfar, a minister in the first federal government and an early advocate of independence:

In 1821 the Kingdom of Guatemala was peacefully subjected under the Spanish government; the authorities and the people were preoccupied only with the novelties introduced by the constitutional system. The freedom of the press and the exaltation of the parties, born from the popular elections, spread opinions in favor of independence. Under these circumstances Guatemala learned about the Grito de Iguala, and from April to September the opinion [in favor of independence] spread even more. Independent leaders held meetings in Guatemala, but they did not have the resources or the courage necessary to revolt against the government; they expected everything from the progress of the Plan de Iguala in Mexico.^[1]

Montúfar may have exaggerated the peaceful subjection of the peoples of Central America, but the fact is that independence came without bloodshed. After the news came that the Mexican independence was a fact, a meeting was held on the fifteenth of September with all the authorities of the colony and, after deciding in favor of independence, an act to that effect was written and signed. The fear that Iturbide's troops could come to "liberate" Central America certainly helped to concentrate people's minds on the problem at hand. Central America gained independence as a single country, and not until 1839 were the individual states going to separate.^[2] This seemingly effortless independence, however, was no indication of things to come.

A newly independent country had been signed into existence, but the new leaders did not quite agree on what to do with it. The treasury was empty, and the Viceroyalty of New Spain was no longer there to send situados , which once amounted to more than 25 percent of the budget.^[3] The very first government, still strongly influenced by the conservatives, allowed the Spanish nationals who worked for the colonial regime to leave Guatemala with a two-month severance pay. The new authorities, by and large the same as the old, showed great understanding for the emigrants and allowed them to take their fortunes. The result was a significant capital flight. Mule trains loaded with gold and silver left Guatemala. After public outcry they were charged a small tax

that was often avoided.^[4] The payment of severance pay, capital flight, and the emigration of capable public servants had immediate consequences. No one was left to collect custom duties. When the government tried to appoint judges in the provinces it realized that there were no resources to pay their salaries.^[5] There were new authorities ready to decide on the future but there were no resources to carry out the decisions.

Moreover, the end of Spanish rule left a power vacuum that horrified Guatemalan merchants. At the same time, the possibility of a Mexican invasion was still present. The Marquis of Aycinena, the most prominent merchant, had established contacts with Iturbide.^[6] After all, if Central America became a part of Mexico it would be possible to avoid the civil wars that were plaguing South America and, more importantly, the Guatemalan elite would be able to keep its preeminence.^[7] Others, like José Cecilio del Valle, one of the foremost Central American intellectuals of the period and author of the Act of Independence, had questions about the practical viability of the new state because of its "lack of population, lack of ports, distant and insalubrious coasts, without a fleet, with little trade, so far backward in every aspect."^[8] His misgivings were very understandable. Central American leaders felt that they had no exact knowledge of the population or resources of the region, the territory was not well known, there were no accurate maps, no one knew how much food was produced or how rich the cities were.^[9] To others the problem had a more direct political dimension. In the discussions held by the Junta Consultiva Provisional , the first governing body of the independent nation, Gabino Gaínza, the last jefe político and first president of the junta, supported the union with Mexico arguing that it was important to preserve the union of the provinces.^[10] In short, some of the same people who had signed the Act of Independence were willing to give it up in the hope that Mexico would fill the void left by Spain. Iturbide obliged; an invitation to join Mexico arrived.

Independence, however, brought into the open deep divisions that had existed since the late eighteenth century. The bitter struggle between liberals and conservatives acquired new strength.^[11] The resentments created by the heavy-handed practices of the Guatemalan merchants were translated into resentments from the provinces against Guatemala. The aquiescence of the provinces was not guaranteed. The Ayuntamiento of San Salvador refused to unite with Mexico. In June 1822 the Guatemalans, who supported Iturbide's claims, invaded San Salvador with an army of one thousand men and soon were joined by the Mexican general Vicente Filisola, who arrived with six hundred more. This army could not defeat the Salvadorans and retreated. Reactions followed, and Central American divisions became apparent. In

Nicaragua, the cities of León and Granada had a war of their own provoked by the same issue, and Granada ended up victim of pillage and robbery.^[12] In 1821 Chiapas declared its independence from Spain and Central America and its union with Mexico. It declared that it would never again belong to Guatemala even in the eventuality that Guatemala united with Mexico.^[13] Later that year the Honduran city of Comayagua declared itself free from Spain and from Guatemala as well.^[14] Mexican troops invaded San Salvador for a second time and forced the state into submission. The Mexican episode lasted less than two years; it collapsed after Iturbide's fall in Mexico. The number of people involved in the military operations, the pillage, and the other means used to finance the armies were enough to deplete the almost empty coffers of the new nation. Guatemalan, Mexican, and Salvadoran troops had been mobilized from March of 1822 until February of the following year. The two invasions represented a serious disruption of the economic activities of the state of San Salvador. In Guatemala the funds of the mint were looted to finance the military campaigns, and the federal government had to pay for the return of Filisola and his army to Mexico.^[15] Rather than filling the power vacuum created by independence the Mexican invasion helped to expose the divisions that would plague Central America for two decades and gave a hint of the costs of instability.

The first one and a half years may have been troubled, but independence was still expected to bring great prosperity. One of the main burdens of being a Spanish colony was the restrictive trade policies imposed by Spain. The economic potential of Central America had not been developed. Untapped resources were waiting, many liberals thought, for a free market to operate and transform them into holders of tangible wealth. The period immediately after the Mexican invasion was a period of hope, soon to be followed by frustration.

It is impossible to measure hope or to weigh the optimism that prevailed after independence, but there is a curious document that illuminates this aspect of the early years of the federation. England had been engaged in trade with Central America during the last years of the colonial period and was ready to take advantage of the commercial possibilities opened up by the new political situation.^[16] In order to be prepared to carry out its policies and protect its interests, the Foreign Office asked George A. Thompson "to collect detailed intelligence respecting the present state of that country."^[17] Among the sources on which he based his report there is a document written by Juan de Dios Mayorga dated in Mexico, January 12, 1824. Mayorga, an early leader of the independence movement, was sent to Mexico in 1822 as a delegate to the Mexican congress to negotiate the annexation of Central America to Iturbide's empire. His document is remarkable for being an exercise

of imagination more than a statistical study. He wrote it after a two years' absence in Mexico, part spent in jail and at a time when statistics on production had not been kept because of the political changes that were taking place. Mayorga himself recognized the shortcomings of his report:

The produce of Guatemala and the quantities thereof are herein only expressed so as to give a general idea by way of approximation because, for want of actual data, it is impossible to give the exact amounts, and the same are, therefore, stated as more or less. Our object has been to form a calculation of the several articles of produce, both as articles of barter or of consumption, by the growers themselves, because undoubtedly both contribute to augment the riches of the country.^[18]

Adding up the value of all the products included in Mayorga's document, a figure of 52,529,450 pesos is obtained, which suggests a production per capita for all of Central America of around 26 pesos.^[19] This is certainly a high figure if compared with estimates of the income per capita for El Salvador alone; and it would have been higher if Mayorga had included investment and government expenditures.^[20]

Despite the fact that Mayorga's estimates are high, the precariousness of the Central American economy is still apparent in his account. It portrays a rural economy where most of the energies are devoted to produce food. Agricultural production accounted for more than 80 percent of total production, maize and beans roughly 20 percent, and food in general 40 percent. Even with so much energy devoted to maize production the yearly per capita consumption of maize implicit in the estimate was only 197.3 kilograms. It was a sad diet made more depressing by the fact that the yearly consumption of country brandy was estimated at only two bottles per head. Manufacturing, much of which was a product of Mayorga's fantasy, accounted for little more than 15 percent of the product, and it included things like "articles for the chase such as bows, arrows, lances." All manufacturing, with no exception, was at the level of the most basic handicrafts: palm hats, baskets, country earthenware, straw mats, and the like. Tool production was estimated at only 20,000 pesos (0.3 percent of the total), a smaller figure than the estimate for musical instruments of all sorts (50,000 pesos) and certainly far smaller than the value of articles of embroidery (1.5 million pesos). Together with somewhat realistic figures on indigo production (3 million pesos, still an exaggeration), Mayorga provided data on the production of exotic items such as pearls, coral, mother of pearl, chamomile, flowers, opium, and the like. Much of these data on exotic items were apparently provided in the hope of stimulating British interest in Central American products. The fact that we know that Mayorga's report

has much of the optimism of a nineteenth-century public relations man only highlights the fact that the economy he tried to embellish was very poor indeed. However high the hope for prosperity the point of departure was extremely low.

The optimism of official and semiofficial reports on the economy can be explained in part by the desire of the federation to issue bonds to sell in the English market, but the optimism was genuine nonetheless. The expectations of an economic bonanza were so high that the rulers of the new nation felt free to borrow, because they had little doubt about their ability to pay in the future. These hopes were based on the belief that by lifting the restrictions imposed by Spain on trade and by lowering taxes, trade would be encouraged and economic growth would follow. By opening all ports to international trade and thus putting an end to monopolistic practices and restrictions on the mobility of factors of production the rulers of the new nation expected to bring prosperity to its inhabitants. The first years of independence had not been free of problems. The depression of the last colonial years had been severe and the Mexican invasion added uncertainty, caused destruction, and disrupted economic activities. It was not a propitious environment for recovering from a long depression, but after overcoming its first crisis the federation leaders felt certain that prosperity was just around the corner.

Interlude of Prosperity

During the period of relative calm between 1823 and 1826 the economy seemed to be on the road to recovery. Free trade policies had some positive effects. José Cecilio del Valle summarized the situation as follows:

Before independence trade was very scarce, particularly in the later years, due to the Napoleonic disturbances and the pirates, but from 1821 to 1825 it practically doubled and the perspectives for the future in that direction were magnificent, in particular for the import trade, because exports were restricted by the poverty of agriculture. Nonetheless, some articles in demand in the European markets were exported thanks to the prosperity of the industrial revolution, prosperity that favored those countries that produced raw materials or articles used in the textile industry such as cotton, cochineal or indigo. Lately, trade with Spain was limited almost exclusively to the export of indigo and cochineal. Up to 8,500 bales of the former product, with an annual value of over two million pesos, were sent to the peninsula. In 1825 [indigo exports] had reached again their original value of two million pesos and it was expected that, thanks to the new laws, their value could increase to five million pesos.^[21]

Other sources confirm Valle's analysis.^[22] Indigo production, which had declined steadily before independence, was calculated to have reached about 1.2 million pounds by 1826, in sharp contrast to the low pre-independence level of 332,000 pounds in 1818.^[23] The average amount produced between 1809 and 1818 had been only 459,407 pounds. The Consul of the Netherlands, Jacobo Haefkens, attributed the increase in production to the better prices obtained in the free market as opposed to the prices received from the Cádiz merchants.^[24] The combination of peace and free market policies was a powerful stimulus to the economy.

Foreign trade was the main beneficiary of these policies. The positive effects of free trade were reinforced by a marked improvement in the international price of indigo. During the first decade of the century the average price of a pound of indigo in the English market had been 8s . 8d . By 1824 it had increased to 10s . 1d ., in 1825 to 13s ., and in 1826 to 11s .^[25] For the local producer, however, the rise was not as high. Lower export taxes plus freedom from Spanish monopolies do not seem to have had a great effect on the local prices of indigo. Indeed, the difference between local and world prices increased.

There were no ambiguities in the market for imported manufactures; import prices declined across the board. With lower prices and virtually no restrictions there was a trade boom. "It may be said in general," wrote one of the leading merchants, "that the importation and exportation bear a progressive increase from one year to another in the ports of the Atlantic as well as those of the Pacific."^[26] Since imports increased faster than exports there was a substantial outflow of specie. In 1830 it was estimated that 600,000 pesos in gold and specie were exported to Belize.^[27] It was the monetary equivalent of about half of a good indigo crop. Two years later the American consul reported that more specie was leaving the country.^[28] The increase in trade was translated into a sharp decrease in the price of English goods. The tiny market was saturated in a very short time. After all, it was only the few members of the elite who had a taste for European products or the silver to pay for them. From 1824 to 1825 the price of English textiles dropped between 20 and 30 percent.^[29] Newspapers complained that despite the fact that the market was saturated the introduction of large quantities of English cottons to San Salvador was not interrupted.^[30] In the first years after independence legal commerce had risen steadily and dramatically. Central American exports went up from 81,922 pesos in 1823 to 1,051,900 in 1826.^[31] As these figures were estimated from tax collection data, they reflect not only the amount of trade but also the capacity of the state to raise taxes. It is doubtful, however, that the figures exaggerate the trade recovery. All the available evidence indicates that during the federal

period the government's capacity to enforce tax collection was extremely limited.

As a matter of fact, contraband trade, which had been very much alive during the colonial period, became even easier under the weak new authorities. The flight of Spanish bureaucrats had already hurt the ability to collect customs taxes, and the internal divisions of the federation further crippled the system. In 1825 the contraband from Jamaica entering through Omoa was estimated at £100,000.^[32] About half of the goods imported by Guatemala in 1825 came from Great Britain, mainly "broad cloth, all kinds of cotton goods, hardware and other dry goods."^[33] Most of the contraband trade was carried from Jamaica via the British settlement of Belize. Trade with Belize was simple; all that merchants had to do was to go to Belize with hard dollars, indigo, or other produce, and then buy or barter to obatin British goods.^[34] At the same time that the authorities of Belize were reporting to London that trade with the "Guatemalan provinces" had increased considerably, the collection of import and export taxes was decreasing.^[35] In 1826 the authorities complained bitterly about the seriousness of the problem of smuggling, but they were impotent.^[36] In a moment of frustration President Arce asked the British consul for help in controlling contraband, but the latter made no commitments.^[37] In his opinion smuggling was due to the inefficiency of the local authorities; he thought that "there is no place in the world where the collection of revenue is so little understood, and, consequently, where the frauds are so great."^[38] The problem was persistent. There was a costly civil war from 1826 to 1829, and after the war brought havoc to the administration there was no reason to expect an improvement in customs collection. In 1832 Charles Savage, an American consul, estimated that smuggling amounted to about 28 percent of the total goods traded in the northern ports. In the southern ports, the consul observed, "the business of the customs is even more fraudulently conducted."^[39]

It was a two-way smuggling. Indigo and other goods brought to Belize paid no export taxes, and the goods acquired there paid no import taxes. The question that arises with this evidence of smuggling is, Why did it persist and probably increase at a time when trade barriers had been lowered? After all, during colonial times taxes added around 25 percent to the cost of indigo delivered to Spain, whereas in the tariff act of 1822, indigo, cocoa, and balsam had to pay a duty of only 2 percent.^[40] On the side of imports, taxes were also low. Imports that paid duty paid between 6 and 10 percent, a figure that in 1824 was increased by 4 percent. It was not until the end of 1825 that protectionist measures were taken and raw materials and cotton goods were forced to pay duties between 20 and 30 percent.^[41] These duties were low, although not negligible. In comparison to colonial times, when taxes were only one of

many restrictions to trade, the postindependence effective tariff was relatively close to free trade. British goods could be purchased at a price "thirty percent higher than they can be purchased at the respectable retail shops in London" wrote Thompson. This was a different world than before independence. Foreign goods could "in most cases be bought for less than one-tenth of the former price."^[42]

The explanation for the extent of contraband trade can be found not only in the incentive to save taxes but also in the low risk incurred by smugglers. The weakness of the new state made it very easy to smuggle goods. In short, the relatively modest gains from engaging in contraband trade were not outweighed by the costs of being caught. Moreover, the indigo fairs stopped offering the relative security of state-fixed prices. If they had been limited to the legal trade, producers would have been, more than ever, at the mercy of the Guatemalan merchants. But the opportunity to take their products directly to Belize and barter them for dry goods was an excellent alternative, and they took it. As a result, trade was even freer than what the authorities had legislated.

Free trade was not a blessing to everyone. The decrease in the prices of foreign goods meant unemployment to producers of importables such as textiles. José Cecilio del Valle estimated that in 1795 there were one thousand looms in Guatemala, whereas in 1830 only one hundred were left.^[43] Manuel Montúfar in his memoirs described the situation as follows:

Trade, which was open to all nations after independence and, in fact, even before, under the government of General Don Carlos Urrutia, ruined, as was bound to happen, the factories of the country; so that the interior trade that existed in wool and cotton fabrics worn by the poor, has been reduced to the consumption of the Indians of the State of Guatemala ... and it is impossible for [Central American] manufactures to compete against foreign products.^[44]

To a certain extent, incipient industry was replaced by commerce. It was more profitable to devote time, money, and energy, to commerce than to manufacturing. Merchants and weavers, however, belonged to different social groups. Thompson was impressed by the way in which the "most respectable families" engaged in trade. Indigo growers and cattle breeders exchanged their products for dry goods, mainly through the Belize connection, and later became retailers of those products.^[45] Weavers, by contrast, did not have the skills or resources to take advantage of the new opportunities. It was impossible to compete with inexpensive European manufactures; agriculture, cattle raising, and commerce were left as the only possibilities open to the investor.

In this environment of open trade, lax government, and, as we will discuss shortly, great political instability, the economy of Central Amer-

ica experienced important changes. The relative economic integration that had existed in the late colonial period was weakened. The previous system had two basic features: the preeminence of indigo as the basic cash crop, and the trade regulations imposed by Spain. The regulations disappeared with independence, and the importance of indigo declined (this is valid for Central America as a whole, not for San Salvador, which remained dependent on it). Moreover, Guatemala discovered the potential of cochineal, another natural dye. Although indigo exports to Great Britain fluctuated widely (in a very good year like 1839, 700,522 pounds were exported, but in a disastrous year like 1832 only 61,061 pounds were exported), cochineal exports to England were growing at a very steady rate from 4,691 pounds in 1823 to 602,096 pounds in 1839.^[46] This shift in production had great repercussions. As cochineal production was exclusively a Guatemalan endeavor, the previous division of labor, in which the Guatemalans were merchants and the other provinces were producers, disappeared. Guatemalans, including some old merchant families and even Chief of State Mariano Gálvez, were obtaining great profits from cochineal and depended less on the other states for their economic well-being. Old colonial ties were weakened.

Changes in trade routes also contributed to break old ways of doing things. In the past, colonial regulations and the monopoly of the Guatemalan merchant families had forced most trade to go to Guatemala first, to be then exported to Europe via Veracruz or Izabal. After independence, exports via Veracruz made little sense. Belize became the Atlantic port of choice. It had the best facilities and was regularly visited by British ships. Every year between seventy and one hundred ships arrived at Belize with European merchandise and left the port loaded with indigo, cochineal, and other minor exports such as sarsaparilla.^[47] But this trade was nobody's monopoly: Belize merchants consigned goods to Guatemala City; merchants from the different states took their goods to Belize. Anyone with something to sell went to Belize.^[48] Belize merchants prospered rapidly and began playing an active role in the Central American economy. Marshall Bennett, their main representative, exploited the "Tabanco" mine in the northeast of the state of San Salvador.^[49]

Pacific ports were slow to develop, and their advantage over Belize was ambiguous. At the end of the colonial period the importance of Acajutla, off the coast of El Salvador, was very limited; only two or three ships visited it every year.^[50] As a result of independence British merchants based in Chile and Peru began doing business on the Pacific coast. As early as 1824 and 1825, more than ten British and American ships were visiting Acajutla every year. They traded in gold, silver, "Asiatic goods," wine, flour, and European manufactures.^[51] From ten to fifteen British vessels were active in the Pacific trade in 1827.^[52] When

the Atlantic trade was disrupted by the civil wars that dominated the period, the Pacific trade expanded. That is what happened during the civil war of 1826–1829 and again in 1833 when about one-third of the indigo exports were taken to the Pacific ports rather than to Belize. But when calm returned, the latter port was still preferred. Nonetheless, a general increase in commerce along the Pacific coast and new business contacts helped to establish ports like Acajutla and La Unión.

An important development took place in 1833 when the agent to several Manchester manufacturers received a shipment sent directly to the Pacific port of Iztapa (Guatemala) via the Horn. For the first time in Central American history a Pacific port received a direct shipment from Great Britain. The event set a valuable precedent, "the success which attended the experiment," reported the British consul, "caused a native house to follow the example, and in consequence another ship arrived from England in the month of September [of 1834]."^[53]

In a short while British manufacturers were doing direct business with Acajutla and La Unión.^[54] The federal authorities were as interested as the merchants since the Pacific trade could represent a healthy competition to troublesome Belize. In his 1835 message to the congress an enthusiastic vice-president reported that "This [Pacific] trade produces incalculable benefits to the agriculture of the country and it destroys the settlement on the North Coast."^[55] This was a most important development for Salvadorans who for the first time could do direct business with Great Britain from their own territory. This complemented the business done by British houses in Belize, Peru, and Chile who were already advancing merchandise on credit to Salvadoran indigo producers. By 1839 almost 28 percent of the indigo production was regularly exported via Chile and Peru. British merchants became regular customers at the indigo fairs in San Miguel and San Vicente in eastern El Salvador, and they replaced the Guatemalan merchants and the Montepío de Cosecheros de Añil as the main source of credit for the production of indigo. Independence and free trade had opened possibilities and created problems, but the states of Central America were on a new track. For El Salvador this meant that the old commercial dependence on Guatemala could be severed and that it could establish its own channels to obtain credit and trade its products.

The Finances of the New Nation

The mixed blessings of free trade were particularly harsh on the finances of the federal government. The federal authorities inherited a very bad financial situation that worsened immediately thanks to the Mexican in-

vasion. When Manuel José Arce came to power as president of the Provincias Unidas in 1824 he found only six hundred pesos in the federal treasury.^[56] On top of that, taxes were cut, tax collection became more difficult, and government expenditures increased rapidly to finance a new bureaucracy and army.

After the Mexicans left, the main authority was the Asamblea Nacional Constituyente , which was elected to write the constitution of the federation and began at once to enact a liberal program. New Pacific ports were authorized.^[57] Taxes on gold, silver, tobacco, and iron were eliminated. Sales taxes were lowered from 6 to 4 percent. Textile imports were charged between 4 and 10 percent according to their origin.^[58] (The legislation that set these taxes did not pass without opposition. Many had profited from the monopolistic structure of the market that prevailed during the Spanish regime and, not surprisingly, wanted no changes. "Still there are men," wrote José Cecilio del Valle with dismay, "who find the freedom of trade repugnant.")^[59] Weak attempts at protectionism failed. In October 1825 another measure was taken both to increase revenue and to protect artisans. A new tax was imposed on raw materials, cotton goods, and other imports competitive with domestic products. The tax rates were between 20 and 30 percent.^[60] But smuggling was already out of control.

Lower taxes and inefficient collection meant less revenue that, in turn, had to be distributed between the federal authorities and the states. The federal government was supposed to receive all the revenue coming from custom duties, the tobacco and the gunpowder monopolies, the post office, and public land. Revenue from other taxes was left to the states. If there was a deficit, the states had to come to the help of the federal government and share the burden.^[61] The result for the finances of the federation was crippling: revenues fell, expenditures rose, and the burden was not shared. The receipts of the tobacco monopoly (about half of the total revenue) were to be administered by the states.^[62] They did so but preferred to keep the funds to themselves. Only Guatemala, interested in influencing the federal government, contributed to its support. As mentioned above, the other main source of revenue, custom duties, did not fare very well. Smuggling flourished, while taxes decreased.

Nonetheless, at the same time that the new country was encountering difficulties in raising taxes, it increased its expenditures. A whole new beureaucracy was created. There was an executive, a congress, a senate, and a supreme court at the federal level; and executive, legislative, and judicial branches at the state level.^[63] It was an untenable situation; the government could not even pay current expenditures. In 1826, the situation deteriorating because of the civil war, the federal congress had to pass a law decreeing that

since there is not enough to pay the full amount of the salaries of all the employees, a proportional distribution of the existing [revenue] should be made.^[64]

It was not a promising environment to build the institutions of the state.

Expenditure was greater since 1821 due to independence, the first war with San Salvador, the division of Mexican troops, and the creation of a central independent government, based upon a system of double expenditure, paid by and large by the State of Guatemala.^[65]

Political problems made it impossible to solve the financial riddle created by free trade policies. Every effort to enhance revenue was checked by conflicting interests. To improve the finances of the federal authorities the congress suggested that the Montepío de Cosecheros de Añil should be considered federal property. President Arce, a Salvadoran and an indigo grower himself, considered the suggestion discriminatory against Salvadorans. The non-Salvadoran members of the congress accused Arce of defending local interests.^[66] Endless political games turned the federal authorities into chronic complainers. Even the administration of already-approved sources of revenue was a nightmare. The Salvadorans, for example, refused to allow federal appointees to administer the tobacco revenue; it was a question of sovereignty.^[67]

Not surprisingly deficits in the federal budget were the rule. In 1827, during the civil war, the budget estimated a deficit of 690,791 pesos, almost equal to the estimated revenue of 690,000 pesos.^[68] But it did not make a difference whether the country was at war or at peace, the problem was never solved. A bold move to raise foreign funds to get out of the problem failed miserably. At the end of 1825 the government contracted a bond issue with the London banking house of Barclay, Herring, and Richardson. The English bankers were supposed to sell £1,428,511 in bonds. By August 1826, they had sold only £111,300, and that very same year the company went bankrupt.^[69] Even worse, the little money that was raised was wasted in war activities. It took half a century before this debt started being paid by the then individual countries of Central America.^[70]

The authorities were caught between their liberal ideas and the economic needs of the new state. Their lack of experience in such matters and the internal divisions of the federation did not help. In 1828 the secretary-general of the state of San Salvador summarized his view of the puzzle:

Since our separation from Spain old contributions have been abolished in part, and in part they have considerably diminished, and as a consequence

there must be a deficit in the treasury. This deficit must be greater in proportion to the increase in our needs; and the local governments, who rather than oppress the people with contributions want to make them lighter, face difficulties sustaining themselves without becoming odious when the results of their efforts to increase public wealth are imperceptible and the beneficial influence of freedom cannot be perceived either.^[71]

Promises had to be balanced with realities and nobody found the formula to do it. The federal government could never justify its existence since it could not supply any of the public goods that are expected from a state. There was more to government than lowering taxes. Who would build roads and bridges? Who would administer justice? Who would organize an educational system? When the federal congress closed its 1838 session, its president gave a bitter summary of the situation:

So far we have been unable to consolidate a stable government capable of making us shine with all our light and capacities.... Education being the greatest goal to which every nation that aspires to be great and powerful should devote all its efforts, we, for well-known reasons, have no more than six educational establishments in the Republic.... We have no navy.... We have no army.... There is no administration of justice.... We have no external or internal credit.... Agriculture and trade are not as prosperous as they should be because there are no roads, no bridges, no highways, no security.... We do not have more enlightened men to help us to promote our well-being and save our fatherland because we have not known how to educate them.^[72]

Central America had much to learn, and its rulers had to confront the consequences of their policies from the very beginning. Free trade brought an increase in commercial activity, but revenue decreased when it was most needed to consolidate the federation. Artisans were hurt, the previous beneficiaries of Spanish regulation became uneasy, the old conflict between Guatemalan merchants and Salvadoran producers was exacerbated. Although Central America was spared an independence war, it found in due time that the internal conflicts within the new country were ripe for open confrontation. From 1826 until the breakup of the federation, war became a way of life, and the gains that could have been made from the new economic policies were wiped out by destruction, diversion of resources, and uncertainty. Very little was achieved in terms of building institutions or providing services, but new economic trends did appear. El Salvador's economy began breaking away from its dependence on Guatemalan credit and trade routes while, at the same time, sharp political divisions were destroying the federation.

The Costs of War

Together with free trade experiments, one of the main features of the Central American Federation was the constant turmoil. The brief interlude of prosperity that lasted until 1826 was followed by almost twenty years of civil war that caused the collapse of the Central American Federation. The potential benefits of a united Central America—a more diversified economy, larger markets, a greater bargaining power when dealing with the outside world—were difficult to comprehend when the main economic activity was, by far, subsistence agriculture. It took a leap of the imagination to have a clear picture of the full benefits of unity. The perception of what divided Central America was more clearly defined in people's minds. The provincial elites, in particular, had old grievances against the capital. Indigo producers were concentrated in San Salvador whereas the financing and marketing of that product were carried out by merchants living in the captial; tensions between the two groups, apparent for a long time, were behind the main military and political confrontations that followed independence. Far away, isolated Costa Rica had always felt neglected by the capital and did not feel strongly attached to the federation. The Nicaraguans, also suspicious of the capital, were strongly divided among themselves. Moreover, Central Americans had to decide on the organization and the orientation of their new country in that environment. Regional animosities helped to stir up the ideological divisions that had taken a sharp profile during the second half of the eighteenth century. As Ralph Lee Woodward Jr. puts it:

Central American conservatives retained serious scepticism about the ability of any but the educated and propertied to govern. A more important institution in the liberal-conservative struggle was the Church. The liberals sought to disestablish it and remove it from political and economic power, while the conservatives cherised it as a defender of their privileges and a vital element in both controlling and securing the support of the masses. Liberals sought to destroy monopolistic control of the economy and to eliminate the fueros of the conservatives—ecclesiastical, commercial, university, etc.^[73]

Although liberals and conservatives, Salvadorans and Guatemalans, producers and merchants found reasons to despise and fight one another, the authorities of the federation, unable to raise revenue, did not find a way to justify their existence. They provided no security and often seemed to threaten it, built no roads or ports, and did not create a legal system that people would accept. The forces that divided Central America seemed much stronger than the reasons to remain united.

War and instability had profound economic consequences. Warfare blocked the possibilities of achieving economic growth; it destroyed resources or diverted them to noneconomic activities. Although there is nothing new about this notion, an idea of the specific ways in which wars were destructive is helpful to understand the obstacles to growth during the first half of the nineteenth century. El Salvador was well suited to maximize the damage done by wars; the country was small, underpopulated, and participated actively in most of the wars of the period. Every district of the country, every economic activity, and every individual was touched by them. Marure, the foremost historian of the region during the nineteenth century, compiled statistics on the Central American wars during the period 1824–1842 (see table 4). According to his computations 23 different chiefs of state led Salvadorans in 40 battles in which 2,546 people were killed. These figures yield an average of 2.1 battles and 134 killed per year.^[74]

There are numerous accounts that provide a qualitative assessment of the economic impact of this situation. The cumulative effect of the wars was apparent to the travelers who visited the region during the 1840s. Robert G. Dunlop, who traveled through El Salvador in 1846, noticed that "the state of San Salvador appears to be in a most exhausted and ruined condition from the effects of the long continued civil war. All sorts of industry are nearly at an end."^[75] Whatever growth took place during the early national years was lost in the turmoil. In the middle of the century, D'Arlach, a French traveler, found a stagnant economy. "After independence," he wrote, "the progress has been nil."^[76] Unable to produce indigo, its only export crop, at the same levels as before, the country had no money left for imports.

The imports from South America had also sadly fallen off; the importers have for the last two years done so badly, that only one vessel arrived with a small quantity of merchandise, but even that is more than the people have cash to pay for.^[77]

The trauma of the collapse of the federation left deep scars. After issuing its first constitution in 1842 El Salvador remained prone to political instability and warfare. (There were wars with neighbors in 1844, 1845, 1851, 1863, 1871, 1872, 1873, 1876, 1885, and 1890.) Of course, not all wars had the same intensity or the same impact on the economy. The war of 1863, for example, resulted in a prolonged occupation of the country by Guatemalan troops and hurt the economy very directly. The wars of the 1870s, by contrast, had little impact on exports.

The analysis that follows shows the specific ways in which warfare affected the factors of production. Although the quality of the data makes it impossible to arrive at realistic global estimates, an effort has been made to provide a sense of the proportions of the problem.

Capital

The availability of capital was affected in many ways, the most obvious of which was through direct destruction. Facilities necessary for the production of indigo were destroyed, buildings were sacked, animals were killed. At the same time, the incentives to increase the stock of capital were very badly hurt since investment is very sensitive to the effects of uncertainty. In order to invest, people reduce present consumption in the hope of increasing their future income. Before investing, the most sensible thing to do is to figure out the expected return on the investment. The prudent investor wants to have a rough idea of the possible costs of the investment, its potential benefits, and the alternatives at hand. All these calculations become much more difficult in a situation of political turmoil. During the wars, the costs of investment went up because of the problems of obtaining labor and working capital when needed, and because physical capital was often destroyed. Once the final product was ready there were further problems in getting it to the market and then in obtaining payment. Moreover, the very availability of funds for investment was limited by war. From the lender's point of view it made very little sense to give money to an investor who could not guarantee repayment or even that the collateral would be there in case of default. Even those who in better times had been able to invest their own resources saw them reduced by the forced loans imposed on them by the contending armies. Thus, everything conspired against invest-

ment, and by limiting investment the wars affected not only current production but also future growth.

The climate of insecurity was present everywhere and for everybody. Evidence of this climate is clear from accounts of the civil war of 1826–1829 when "businessmen and peasants were always exposed to the barbarism of the soldiers; nobody had security, even letters were intercepted and prohibited."^[78] Property owners were always fearful of forced loans; the fear of "kidnappings, violent exactions and forced conscriptions was felt even in the provinces most distant from the theater of war."^[79] Forced loans drained the country of funds for investment. Even when someone had funds it was most unwise to show any evidence of their existence by doing foolish things like investing. The means of financing wars remained the same throughout the century and created problems for future governments. War claims from nationals and foreigners haunted the authorities for years. In 1859 the government was still paying loans and damages caused by the war between the state and Francisco Morazán in 1833. Even when a certain degree of stability was established it was extremely difficult to revive the primitive financial markets. The government had serious problems borrowing money even for its current operations. As late as 1860 La Gaceta complained that after peace was restored in 1846 "it would have been expected that credit would have improved, however, that happened very slowly."^[80] Dunlop, who traveled in El Salvador in the early 1840s, tells a story of how two well-to-do acquaintances tried to turn their property over to him in order to avoid government exactions. They were so anxious that they found it easier to trust their valuables to a complete stranger than to face a certain loss. And they seem to have been prudent. The end of the story is that they had to give ten thousand pesos to the government.^[81] This story perfectly illustrates the difficult environment for the investor. It was hard enough to keep one's money under the mattress, and it was sheer heroism to invest it.

The effects of instability on the credit market can be illustrated by comparing the case of El Salvador with that of Costa Rica, which remained largely isolated from the Central American conflicts. Whereas in El Salvador the public sector drained the credit market through forced loans to sustain destructive wars, in Costa Rica it was an important source of funds to finance investment. Between 1824 and 1850 Costa Rican municipalities, for example, played an important role as money lenders. During the same period public schools and hospitals financed part of their activities by lending money. More than half of the funds in the credit market came from public institutions of one sort or another."^[82] Even more, public lenders gave longer terms than private ones and played an important role in financing the beginnings of the coffee

industry. This early start in the credit market permitted Costa Rica to open its first successful commercial bank in 1863, seventeen years earlier than the first Salvadoran bank. With a dramatically better credit environment (and a somewhat better transportation situation) Costa Rica began profiting from coffee much earlier than El Salvador. While the Costa Ricans were laying the foundations of their credit institutions and adding to their capital stock, wars in El Salvador destroyed what capital stock existed. Again, this practice was perfected in the early years of the federation. Part of the physical capital that was inherited from the colonial period suffered early in the process. The destruction of property took very serious proportions. When the Guatemalan army invaded El Salvador in 1828 for over seven months, its soldiers pillaged small towns throughout the territory of the state. When they were forced to retreat, they engaged in destruction and looting on their way back to Guatemala. Houses, schools, and other public buildings were demolished or torched in eight different towns. A total of 1,268 buildings suffered at Guatemalan hands. The buildings ranged from humble thatched huts to municipal buildings of more solid construction. In many cases this amounted to the destruction of entire towns. In the small town of Nejapa (population 1,162 in 1807) 281 private houses were torn down, together with part of the convent and two municipal buildings. In Aculhuaca, another small town, the destruction included 136 private houses, the school, the customs house, part of the convent, and the municipal building (see table 5).

Buildings in rural properties suffered great damage. The Aycinena family, which led the conservative side during the civil war, suffered.

considerable losses with the invasion—as the Marqués de Aycinena complained:

[T]he considerable fortune that we had was ruined by the revolution that book place the year of eight hundred twenty seven till eight hundred twenty nine, because the government of Salvador took over sixteen haciendas that we had in that state, selling all their animals, the haciendas in San Vicente, Zacatecoluca and San Miguel, more than four hundred seroons of indigo.... [A]nd even though in eight hundred thirty I managed to make the legislature order the devolution of the haciendas, it was impossible to work them again since they were deserted and their buildings were in ruins and it was only possible to rent one or another.^[83]

Examples of the destructiveness of war were not limited to 1828. Every one of the wars of the nineteenth century offers examples of considerable destruction. In 1870 President Dueñas was charged by his enemies with torching four hundred coffee plantations in Santa Ana province.^[84] The charge was a clear exaggeration since it implied that he torched more plantations than were in existence. However, it does highlight the fact that allegations of destruction of property were all too credible.

Although not all wars destroyed capital in the same degree, all affected the investment climate and delayed growth. Perhaps direct capital destruction was less important than the amount of capital that was not created due to the enormous risks involved. In this respect small wars and coups d'etat could be as damaging as big wars. Moreover, warfare also distracted the government from investment in overhead and in human capital.

Labor

The wars severely affected the availability of labor. An obvious way in which this happened was by permanent removal of people from the labor force. A total of 2,546 Salvadorans died at war between 1824 and 1842 (see table 4). This figure amounts to about 3 percent of the labor force.^[85] A less permanent but equally significant effect on labor was the conscription of able-bodied men to serve as soldiers. War took men in their prime away from productive activities. The authorities were perfectly aware of the damage done to agriculture when big armies were conscripted. When in 1823 the Salvadoran army invaded Guatemala for the first time, one of the arguments used by the federal and Guatemalan officials against the invasion was that "it was not desirable to withdraw so many arms from the agriculture of only one province"^[86]

Table 6 gives an estimate of the labor demands of warfare. The table

was constructed with data from various sources. The number of wars and their duration was compiled by Alastair White, and the size of the Salvadoran army engaged in each war was obtained from various sources.^[87] The number of months/men at war estimated in the table is probably an upper bound, because it is hard to believe that the same number of men who started a war finished it. There were deaths and desertions that cannot be taken into account in the calculations. Nonetheless, the table should give an idea of the effects of the wars on the availability of the labor force.^[88] Salvadoran armies with 500 to 3,000 men were at war for fifty-two months. This figure is a gross understatement of the effects of wars on the labor force since conscriptions also removed men from productive activities by forcing them into hiding. Government troops recruited new soldiers wherever there was a concentration of men; young peasants found it necessary to avoid important economic activities such as Sunday fairs and work gangs in haciendas.

This arbitrary way of recruiting armies had unexpected effects on trade. The Indians who provided the cities with vegetables and fruits stopped going to the markets because they were fearful of being conscripted.^[89] Soldiers were recruited in a most arbitrary fashion, without any consideration paid to their desires or to the damage done to production. Marure described in detail the conscriptions for the 1826–1829 war:

The conscriptions were carried out in an extremely rigorous way; peasants were pulled out from their peaceful occupations and turned into warriors; students abandoned their classrooms to take arms or to hide or become fugitives; it was not possible to freely attend to one's religious duties, because groups of soldiers stood guard in the front yard of the churches to take men by surprise and take them to the garrisons; there were no exceptions and even the people in the municipalities who did not send their quotas [of soldiers] on time were fined, sent by force to the capital and made members of the army and condemned to forced labor in the active service.^[90]

Although Marure refers mainly to the conscriptions of 1827 and 1828, the methods had not changed at all in the 1840s when Dunlop visited the region. He describes how after declaring war against Guatemala,

the government was occupied in catching men for soldiers like wild cattle here and in all parts of the state and raising money by forced contributions, so that the fair, which was about to take place, must prove an entire failure. Those who had anything to be robbed of were taking themselves off as quickly as possible and the common people were hiding in the woods to avoid being taken for soldiers.^[91]

Dunlop's account gives an idea of the environment of fear and insecurity that surrounded conscription. It disrupted all activities and was the prelude to the even more disrupting consequences of war. The frustration of the laborers accumulated after the long period of warfare. "What [the laborers] want," wrote the German traveler Froebel in the 1850s, "is to be freed from military conscription, from revolution and civil war, to be set to work in a sensible way."^[92]

It would be inaccurate to concentrate only on the number of men removed from work; when they were removed from work was also important. The effect of the lack of labor in an agricultural economy varies seasonally. It is not the same to lack manpower during the harvest or the planting season as it is at some other time of the year. Timing was particularly important in the production of indigo, which has to be cut at the right time or it becomes worthless.^[93] To assess the importance of the effects of the wars on the economy it is necessary to have an idea of the distribution of wars in the calendar year. That information is pro-

vided in table 7, which shows the number of times when there was war in each month between 1824 and 1842. As it can be seen, the variation was relatively small. During those twenty years there was war in March nine times, the largest number in the table; and there was war in November two times, the smallest number. Not surprisingly November was the month of the most important indigo fairs. The wages that prevailed at the time are a measure of the productivity of labor and, therefore, the costs of removing labor from productive activities. In 1834 an agricultural laborer received daily about three reales.^[94] To give an idea of the value of three reales in 1834 it would be necessary to have prices for that year. Unfortunately, the data are not available. Nonetheless, it can be mentioned that in 1858 the price of twenty-five pounds of rice was four reales and in 1826 the price of the same amount of rice was between four and ten reales.^[95] This suggests that wages were very high due to the scarcity of labor. This impression is strengthened when the Salvadoran wage of 1834 is compared to what prevailed in Costa Rica in 1846. That year the daily wage for an agricultural laborer was two reales per day, at a time when Costa Rican laborers were "hardly sufficient for working all estates."^[96]

Men killed, men fighting against one another instead of laboring in the fields—these seem to have been the two main ways through which war reduced the amount of labor available for production. There was still another way, out-migration. When times were tough and the amenities of life were absent from a particular region, people moved away in

search of better opportunities. There is no good information about the extent of out-migration in El Salvador during the period covered by this chapter, but Lorenzo Montúfar, writing about problems in the eastern part of the state in 1833, mentioned that in three months 557 Salvadorans had emigrated or been forced to leave the country.^[97] This suggests that the number of emigrants during more than twenty years of war was not negligible. Moreover, after every internal conflict the leaders of the losing party had to go into exile. The numbers involved in this particular form of out-migration are very small, but political leaders were among the very few educated people in the country, and therefore the loss was significant in terms of human capital.

Trade

War threatened not only the different stages of production, but also the final product and the channels for trading it. The logistical demands of warfare disrupted the transportation system. Communications were difficult. In 1827 Guatemala prohibited all exchange of letters and all trade between Guatemala and San Salvador, and the latter province reciprocated with a similar decree.^[98] The limited number of horses, mules, and oxen that existed in the country were constantly subject to requisition by the armies, thus putting a hindrance on production and trade. As early as 1823, the Mexican general who led the invasion to San Salvador had to ask the authorities of the towns occupied by his army about the number of mules confiscated by his troops. His intention was to return them or pay for them, but there is no evidence that he fulfilled his promises.^[99] During the Guatemalan invasion of 1828 both sides tried to make cattle and horses unavailable to the other side, thus limiting the number of animals that could be used for transporting goods.^[100] When the conservative Guatemalan leader Carrera invaded San Salvador ten years later he ordered his troops to take mules and horses from many haciendas and left the country carrying a considerable booty.^[101]

If it was possible to find a mule train and take the merchandise to its final destination, the safety of the merchandise was not assured. Merchant's houses were a target for greedy soldiers and officers. In 1828 Francisco Morazán reported that he was able to stop part of the looting in a town, but a merchant's house had already been robbed.^[102] That year the government of the state of San Salvador expropriated 80 seroons (about 1,200 pounds) of indigo because it belonged to the Aycinena family, a powerful Guatemalan group that led the conservatives who opposed San Salvador. The Aycinenas alleged that the indigo had already been sold to Chilean merchants, and they were so influential that the Chilean government seized 30,000 pesos worth of Salvador-

an indigo stored in the port of Valparaiso. Earlier in the year Salvadoran troops had seized "about 200 seroons of different products belonging to Guatemalan merchants and a considerable amount of specie that was in the customs house at Gualam." This kind of behavior can be found in almost all the wars that took place during the period. In 1837 the town of Zacatecoluca was robbed and some of its citizens were murdered by Indians led by the conservatives. Dunlop thought that the people were "so accustomed to being robbed and plundered" that they had "lost all desire of raising anything more than what may be required for their immediate wants."^[103]

Trade was also affected by political decisions forced by the wars. Again, the civil war of 1826–1829 provides a good example. By 1828 the economic situation was worsening and trade was suffering so much that protectionist sentiment was growing. Both the states of Guatemala and San Salvador restricted the activities of foreign merchants. They could not travel freely or trade on their own. All their commercial activities had to be carried out through local citizens.^[104] The reasons for these trade barriers are not difficult to understand. During the early years of the federation free trade policies had hit the artisan groups very badly. In the heat of the political discussion many people blamed free trade for the economic crisis that was due mainly to the war. Foreign competition was bad enough in times of relative prosperity, but when the wars disrupted the economy and production decreased, there were more things to complain about. International trade, already limited by war, was further limited by protectionism. The decrease in production, the difficulty in finding means of transportation, and the insecurity of the roads also affected trade between the states. According to the British consul interstate trade "decreased sensibly."^[105] Transportation costs had always been high in the region. Rivers were obstacles as opposed to being waterways. If there was no river there were always volcanoes and mountains blocking the way. These problems limited the amount of trade between the states even during normal times. War made matters worse even when it was not intense. Reverend Dunn summarized the problem in 1828:

[A]lthough the war thus languished, its effects were perhaps more disastrous than would have followed a more profuse effusion of human blood. Commerce was altogether suspended, and agriculture neglected; while contribution after contribution drained the city and ruined the inhabitants.^[106]

International trade did not fare any better. In this case the problem was worsened by changes in indigo prices. From 1828 to 1832 they

declined sharply and steadily. In 1828 the London price was 10s . 4d . per pound; by 1832 it had fallen almost 50 percent to 5s . 5d .^[107] This contributed to the deterioration of the balance of payments. In 1833 the British consul informed the foreign office that

the difference between the amount of these [exported] products and the total amount of importations is paid in specie or silver so that every year the precious metals and money in circulation are drawn from the country.^[108]

By 1834 the value of exports of gold and silver for all of Central America was 970,000 pesos, almost the same as the value of indigo (638,000) and cochineal (275,000) put together.^[109] The quantity exported went down faster than prices. Exports of indigo in 1834 were 873,750 pounds, a sharp drop from the 1.2 million pounds produced in 1826.^[110] War affected production so much that it would be hard to argue that lower prices played a significant role in production decisions. In fact, when indigo production began to recover in the 1840s the average price was 4s . 3d ., even lower than in the 1830s.^[111]

The trade situation was serious indeed. Local towns had difficulties obtaining vegetables because conscription scared away Indian suppliers. When mule trains were used in the war effort and roads were dangerous trade between states had to suffer. Trade with the outside world decreased because there was little to trade. Declines in indigo prices made matters worse. Every aspect and every level of trade was affected by war.

Conclusion

The collapse of the Central American Federation was long in the making and very destructive. After the federation Salvadorans did not see major improvements. The legacy of instability was long lasting and so were its effects on the economy. An understanding of the effects of wars on the Salvadoran economy of this period goes a long way to explain why growth was so slow in getting started. A country that began independent life with only 250,000 inhabitants could not have armies without seriously affecting production. More importantly, a very small country that had been a rather marginal part of the Spanish empire and had never had much financial or physical capital had to face destruction and delay capital formation for more than twenty years. Very few resources were available, and they were destroyed or left abandoned. Although at that time land was relatively abundant and in those pre-napalm and pre-

Agent Orange days there were no weapons that could destroy land, there were no men and no tools to cultivate it. When production was possible marketing was difficult; the main means of transportation, the mule trains, were as attractive to generals as able-bodied men. The long litany of destruction and diversion of resources was only part of the negative impact of wars. The investment that did not take place carried the costs of war well into the future. Moreover, although some production did take place, productive activities had to be carried out while adapting to the war environment. That is, resources had to be allocated in inefficient ways in order to get the work done.

It is impossible to estimate an exact figure for the costs of instability and war. The amount and quality of data required for such a computation is not available, and I doubt that it ever will be. We do know, however, that all the travelers who visited the region during the 1840s talk about sad landscapes of abandoned fields and that indigo exports did not return to the prewar level of 1 million pounds until the late 1840s. When El Salvador issued its own constitution and became a political entity separated from the rest of Central America it was a barren country. Much time had been lost, and the country had to find peace to put its men to work and to find a market for its products.

Salvador possesses within itself sufficient means to become flourishing and prosperous. Its condition, however, at the present time, is the reverse of this, for few parts of Central America have suffered more from the devastating effects of civil discord. Broad tracks of land have been thrown out of cultivation; some valuable estates have been almost ruined, many entirely so; the buildings, tanks for the manufacture of indigo, and other appurtenances, have been dilapidated, or maliciously destroyed by the blind fury of party spirit, or suffered to decay, owing to the insecurity consequent to contests so destructive, for at one period war was directed as much against property as against persons: many proprietors have become unable to turn their estates to good account, from the want of capital for working them on so large and profitable a scale as formerly. Notwithstanding these severe misfortunes, a few years of uninterrupted peace would enable the State to rise from its depression; and with the exertions of a sensible and prudent Government on the one part, determined to respect and protect private property; and, with the exertions of owners on the other part, it might again reach a high degree of prosperity.^[112]

3
Organization of the State 1840–1880

With the separation from the rest of Central America, El Salvador had to begin the process of organizing a state and building a nation. Given the resources available it would be an enormously difficult task. In economic terms the colonial period had left a meager heritage much of which was destroyed during the years of the federation. Investment, too, suffered greatly and little new wealth was created during the period of turmoil. Very few people had the capacity to organize the state or to engage in complex economic activities. At the beginning of the century the intendancy had only four lawyers, and during the early years of independent life education did not receive the highest priority; investment in human capital suffered as much as any other kind of investment.

On the political side, the conflict between conservative and liberal ideas of the state became most important. Moreover, the regional dimension of the conflict was not easily forgotten; Guatemala's rulers did not give up their memories of the colonial period and tried to influence Salvadoran politics. Salvadoran politicians had equally good memories and resisted the pressure. Both countries formed short-term alliances with Honduras and Nicaragua to further their causes; all five countries of Central America provided refuge to their neighbor's political enemies. As a result, between 1841 and 1890 El Salvador participated in five wars with Guatemala, four with Honduras, and one with Nicaragua, while thirteen successful coups d'etat occurred.^[1] It took a long time before anyone could see a positive change in the economy, but change did come.

The generalized chaos of the federal period had offered no respite,

whereas in the second half of the century peaceful intervals permitted the development of institutions, the reorganization of the economy, and the formation of capital. As the economy began to grow again, improvements in transportation and changes in the international markets led to the adoption of a new cash crop—coffee—which replaced indigo as the main export crop. The overall effects of wars on the economy declined and internal political life became more stable; over the years Salvadoran presidents had learned the tricks of continuismo , and the growth of the export sector had increased the opportunity cost of warfare and had generated a new consensus.^[2] Change was apparent. The state took form in those years in a process that culminated with the liberal reforms in the 1880s.

Outside forces partially shaped and stimulated the task of nation building. Central America attracted colorful adventurers and the occasional attention of the world powers. On the whole, outside forces that were not directly focused on El Salvador had the greatest impact. The ambitions of William Walker in Nicaragua shook Central America and, in the end, helped to strengthen nationalistic sentiment. The desire of both the United States and England to have a canal crossing the isthmus altered the balance of power in the region. The Gold Rush in California bettered communications by stimulating trade along the coast of the Pacific, thus improving El Salvador's access to the world market. Thanks to these developments it became easier for the country to take advantage of changes in the international economy such as the opportunities created in the cotton market by the Civil War in the United States.

Law and Order

Slowly but steadily the state began to make its presence felt in Salvadoran society. "The government," wrote the editorialist of the official newspaper in 1859, had the "goal of improving everything.... Public buildings, improvement of the army, judicial reform, administration of the exchequer, public education, armaments."^[3] The statement amounted to a definition of the scope of action of the government. The weak efforts made by the authorities of San Salvador during the years of the federation took a new dimension. The goal of "improving everything" gave a sense of direction and also represented a test of power.

Given the problems of the times, the police and the army received special priority. As early as 1825 the federal authorities had issued regulations for a police force, but in 1843 the Salvadoran government found it necessary to pass a law reminding authorities in the interior of the republic about their obligation "without excuse or pretext, to walk their

beat every Monday and Thursday."^[4] In both the 1825 and the 1843 laws the police force was the responsibility of authorities at the town level, a common practice during the colonial period. In 1848 police authority was transferred to the central government when the legislative assembly issued a decree authorizing it to establish a "rigorous" police force to control common criminals "who threatened the life and property of the citizens."^[5] To complement the 1848 law the assembly issued regulations for a general police and a rural police in 1854 and 1855.^[6] Despite these efforts to centralize law enforcement activities, each community financed its own police. In 1858 the town of Chalchuapa reported that its police force was financed by a combination of municipal funds and a voluntary contribution from the town people.^[7]

However, the central government defined the obligations of the police with criteria clearly beyond mere local interests. Besides the normal activities of making life difficult for murderers, thieves, arsonists, and drunkards, the obligations of the rural police included some with wider national implications. For example, the rural police had environmental responsibilities such as to take care that lands were not set on fire, that fishermen did not poison the waters of rivers and lakes, that the vegetation in the margin of the rivers was not removed. They had to report on the condition of roads and bridges. They were also supposed to protect the government's liquor and gunpowder monopolies by persecuting illegal production of those goods. Different forms of the rural police existed since its creation in 1848, and all indications are that it remained active all along. Its structure was modified in 1868 and 1889 until it became the Guardia Nacional in 1911.^[8] As the structure of the economy changed, the emphasis of the responsibilities of the rural police also changed. It always had as one of its functions to enforce vagrancy laws but, as the pressures of the world market increased, so did the importance of this function.

The efforts of the government to assert its authority also had to be backed by a stronger army. The hurriedly conscripted barefoot soldiers of the early years of the republic had to be transformed into truarmies. The efforts in this direction began immediately after the collapse of the federation. As a matter of fact, it was a constant preoccupation that produced a great deal of legislation and limited results. Menéndez's 1858 compilation includes thirty laws and regulations that were meant to organize the army. However, it was not until the first years of the 1860s, under the leadership of Gerardo Barrios, that the army was modernized in a more credible way. Barrios provided it with modern war materiel, new facilities, foreign uniforms (including flashy ones for the general), and foreign instructors. José María Melo, a Colombian general, was invited to instruct the soldiers, and a French military mission including

experts in infantry, artillery, and cavalry arrived in the country in 1862 to train the soldiers. It is not surprising that Gerardo Barrios is still the most cherished hero of the Salvadoran military. His war minister thought that his mission was "not limited to improve what existed but to create what did not exist."^[9] Barrios's successor and main enemy, Francisco Dueñas, shared his preoccupation with a strong army. He created a Civil Guard for the city of San Salvador and issued new regulations for the rural police and the military school.^[10] As positivism made inroads, the officers' school became a more scientific military institute and was named "Escuela Politécnica" in 1871.^[11] That same year a new regulation established that every male between eighteen and fifty years of age was considered part of the militia. Although this was meant to be an egalitarian measure taken by a government that was consolidating its power, the army never was an egalitarian institution. The soldiers came from the poorest social groups, and the generals earned thirteen times more than the soldiers.^[12] By 1880 the army had 20,000 men and had a brand-new garrison and a new military code.^[13] At last the country had the beginnings of a professional army. In fact, as we will see later, since the 1840s a major portion of the national budget had been used to sustain the army.

Together with the organization of the repressive apparatus it was necessary to establish a set of rules for the new country. After the federal constitution of 1824 the country had, counting only the nineteenth century, eight more constitutions, four of them before 1880. Lawmakers kept themselves busy. After the breakup of the federation, the country was left with a combination of laws inherited from the colonial days and from the federation which responded more to immediate needs than to a well thought out idea of a new legal order. When in 1855 Isidro Menéndez was asked to make a compilation of Salvadoran laws, he observed, "The legislation of the state is very abundant, by and large refers to specific cases, and is incoherent, even contradictory, and often does not conform to established principles."^[14] If the state was to organize on a more solid foundation the legal system had to make some sense. Menéndez's compilation was the first effort in that direction. His work was not to legislate but to compile and bring a sense of order; he disregarded "useless" laws and classified the rest in ten books. The next stage was a more creative one: new codes with coherent sets of principles were promulgated. The Code of Commerce was printed in 1855. A code of civil and criminal procedure, authored by Menéndez, was promulgated in 1857. A civil code, influenced by the Chilean code of Andres Bello, and a penal code, based on an 1848 Spanish law, were promulgated in 1860.^[15] As the body of law was developing and becoming more complex, the government began to professionalize the judges, and starting in 1859

professional judges gradually replaced popularly elected ones. As in every initiative taken by the government, the lack of qualified people got in the way. Qualified lawyers "adorned with the required qualities" were few and did not want to abandon a well-paid private practice to join the judicial corps.^[16]

Part of this effort to become a country of laws was the formalization of relations with the outside world. Trade treaties and treaties of peace and amity were signed with the country's most important trading partners. A particularly overbearing and obnoxious British consul, Frederick Chatfield, had given the country its first lessons in dealing with big powers. Chatfield had tried to impose his views on bilateral issues by indiscriminate use of blockades in 1842, 1843, 1844, 1849, and 1850. By 1850 the United States' interests in the region had increased and the strategic potential of Central America was becoming increasingly clear. The young American envoy E. G. Squier became Chatfield's main rival and, in his efforts to curb British encroachments on the Atlantic coast of Nicaragua, sought friends elswhere in the region.^[17] As a result, a treaty with the United States was signed in 1850.^[18] Between 1849 and 1865 El Salvador signed treaties with Belgium, Prussia, France, Mexico, England, and Spain, plus numerous treaties with Central American neighbors.^[19]

After the end of the federation the authorities of El Salvador had much to learn. The country had always belonged to a larger administrative entity and had very little in the way of a central organization; many of the laws and institutions of the colonial system had been rejected with independence, and the debacle of the federation made it difficult to consolidate institutions. In a matter of twenty-five years the country had the beginnings of a legal system and was being accepted as a bona fide member of the community of nations.

Education

The modernization of the repressive apparatus and a body of laws were not enough to create a modern state. It was also necessary to create a citizenry, an awareness of belonging to a community, and to create, at least, an educated minority capable of handling the increasingly complicated affairs of the nation. Wars with neighboring countries and the adventures of William Walker in Nicaragua contributed to the creation the beginnings of a national spirit; more positive efforts were carried out by the government in order to develop an educational system.

The first steps toward the creation of an educational system were taken during the federal period. In July of 1823, less than a month after the

first Asamblea Nacional Constituyente declared absolute independence, one of the deputies of the Asamblea proposed the adoption of the Lancasterian system in the schools of the new country.^[20] Under this teaching method, developed by Joseph Lancaster and Andrew Bell in England, advanced students, under the supervision of a teacher, instructed beginners. Lancaster and Bell's ideas became popular all over the continent, and the Lancaster Company had established a branch in Mexico City in 1822.^[21] Lancaster was a skillful promoter of his system, and when he approached the new leaders of Latin America he found a receptive audience. When in 1824 he sent a letter to Simón Bolívar explaining his educational techniques the letter was printed by the Gaceta del Gobierno Supremo de Guatemala .^[22] Earlier in the year federal diplomatic envoys had been instructed to hire teachers able to apply the Lancasterian system.^[23] (Henry Dunn, who later wrote his impressions of Central America, went to Guatemala as a result of this initiative.) It is clear that the ideas of Lancaster and Bell suited the Salvadoran situation where funds and teachers were scarce and standards did not need to be high.^[24] (Traditional agricultural activities did not require a very educated labor force, but the elite did want to be able to keep the accounts right and to communicate with foreign business partners.) One teacher paid by the government or by the local authorities was supposed to be in charge of each school. This ideal was not always fulfilled, and the training of the teachers was often questionable. Despite the difficulties of the period (one can only guess how forced conscriptions, economic decline, and generalized instability affected the incipient school system left by the Spanish) institutions created during these early years were the foundation for future growth. The first step to apply the Lancasterian system in El Salvador was taken in 1832 when José Coelho, a Brazilian teacher who had organized a Lancasterian school in the state of Guatemala, was hired by the state of El Salvador. Coehlo started in the next year the school "La Aurora de El Salvador," which was the basis for a teacher's school founded in 1858.^[25] Moreover, Coelho, who had knowledge of coffee cultivation, helped to introduce that crop in the country.

The efforts to develop an educational system were renewed after the breakup of the federation. In 1841, just after the breakup, the government ordered every town or valley with more than 150 souls to open a primary school and promised to supply primers to the very poor.^[26] This first law was more a statement of the government's commitment to education than a realistic policy. Seven years' later the goal had not been accomplished: in 1848 San Salvador province had 35 towns and only 22 grammar schools with a total of 996 students. Four of those schools were located in the capital and accounted for almost a third of the total number of students.^[27] There was only one girl's school, which

had 30 students. Limited as it was, education had improved substantially since the early years of independent life. Dr. Manuel Gallardo relates in his memoirs that when he was a child in the town of Suchitoto in the 1830s there were no formal schools at which to study; his well-to-do family had to send him to San Salvador to Mr. Coelho's school. Less fortunate parents who wanted their children to learn how to read and write had to beg their few literate neighbors to tutor them. By 1849 things had improved, and Suchitoto and its district had 4 schools.^[28] During the second half of the century the average school had between 30 and 50 students.

Schools were rather ephemeral institutions that opened and closed at whim. In January of 1849, La Gaceta reported that Cuscatlán province had 34 schools, in June it listed 49, and one year later listed 38. Similar changes can be observed in the number of schools of San Salvador province.^[29] By 1850 the country had 201 schools for boys and a total of 6,696 students. The quality of education was not very impressive, at least it did not impress the German traveler von Scherzer who thought that "education is still at a very low grade, although there is much goodwill on the Subject."^[30] Scherzer may have been too quick to apply European standards, but the little that is known about the educational system supports his observations. In 1858 the town of Texistepeque had only one school and only 10 of its 47 students could write correctly.^[31] Affluent families preferred to send their children, particularly if they were women, to study with private tutors. Women studied reading, writing, mathematics, and "all the other things that relate to the education of a lady," which normally meant sewing, embroidery, music, and drawing.^[32] Rich people from the provinces sent their children to study in the capital or abroad. This last option was open to very few; in 1858 only 22 students from Santa Ana province (population 57,844) were taking courses in schools of San Salvador and Guatemala or in Europe.^[33]

The number of schools increased steadily and somewhat more rapidly in San Salvador province than in other parts of the country: in 1848 San Salvador had twenty-two schools; in 1849, thirty; and in 1858, thirty-five. Although the beginnings were rocky, by the end of the century the ratio of schools to total population had increased visibly. Whereas in 1850 each school served 1,854 inhabitants, in 1892 it served 1,201 inhabitants (see table 8).^[34] This amounts to about 8 teachers per 10,000 inhabitants.

It must be taken into account that the mere increase in the number of schools underestimates the increase in educational services. By the 1890s schools were stable institutions with a formal curriculum and better-trained teachers. Government education spending increased throughout the second half of the century; 1892 expenditures were

forty-one times 1846 expenditures.^[35] These figures do not mean that education expenditures were particularly high. Instead, they indicate that in education as well as in everything else the point of departure was close to zero. It was a difficult process; the government was creating a role for itself where there was none and started with courage and optimism. As time passed the legislators realized the difficulties they were facing and toned down their optimism. In 1841 they expected every town with 150 inhabitants to have a school, but after twenty years of sobering experience they changed the standard to towns with at least 500 inhabitants and, just in case, encouraged private efforts.^[36] But even with somewhat more realistic assumptions the results fell short of expectations. Priority given to education seems to have decreased as attention was turned to the opportunities offered by international trade. As we will see later, since the 1850s international trade grew dramatically, and producers engaged in a fierce competition for labor. Under those circumstances time spent in school and away from the fields was time wasted. In 1872 Field Marshal González, the president of the republic, warned the legislature about impractical legislation and the need to consider education in a wider context "to reconcile the needs of the country with its pecuniary resources and other elements."^[37] It may not have been a conscious decision on the part of the elite (there is no contemporary statement indicating an open disregard for education), but whenever the government had to make a choice between education and the army, or education and roads, education lost. It is clear that education was not the highest priority of the Salvadoran authorities.

An export-oriented economy or a sorry colonial bequest did not have to result in half-hearted educational efforts. The success or failure of El Salvador in primary education can be measured against data for Costa Rica, a country that had been more neglected during the colonial period

and where coffee cultivation started earlier. By 1850 each Costa Rican school served 1,631 inhabitants, less than the 1,854 served in El Salvador. This gap in educational services had been reduced somewhat by 1892 when Costa Rica had one school per 1,026 as opposed to one school per 1,201 inhabitants in El Salvador.^[38] In terms of sheer numbers of schools the advantage of Costa Rica was not overwhelming, although the cumulative effects of the gap have to be regarded as significant. What may be more important is the seriousness and the persistence of Costa Rican efforts. Judging from government expenditures on education, Costa Rica had a steadier and stronger commitment to education. Whereas in El Salvador at most 5 percent of nineteenth-century budgets was devoted to schools and teachers, the Costa Rican government would seldom spend less than 5 percent, and after 1877 it began spending more than 8.7 percent; a decade later it spent between 10 and 25 percent of its revenue on education.^[39] Higher expenditures on teachers and schools were complemented by an educational bureaucracy of inspectors, jueces and comisarios de escuelas, and educational boards at the town level. It is clear that Costa Rica began establishing the foundations of a much stronger educational system in the last quarter of the nineteenth century. The Costa Rican elite had a different sense of priorities that was reflected in their achievements.

If achievements in primary education were only modest, secondary education lagged far behind. In 1872 there were only three official high-schools. The number was still the same in 1893 although by then there were ten private high schools (the most important of which had only 125 students).^[40] The pattern of elitism was reinforced by the predominance of private schools in secondary education. Secondary and vocational education was also provided by two teachers' schools, the "Escuela Politécnica" (which trained military officers), a fine arts academy, and a telegraphy school. Altogether in 1887 El Salvador had 1,293 students in secondary education. Again, a comparison is in order. In 1889, Costa Rica, a country with about a third of El Salvador's population, had 912 students enrolled in high school.^[41] That is, they reached a much higher percentage of potential students.

Not surprisingly, university education did not progress very fast. The first president of El Salvador, Don Juan Lindo, founded the university and an elite high school, Colegio de la Asunción, in 1841.^[42] It took seven years to write the university's bylaws and eight to build appropriate facilities. There was not much pressure since the university could not start working properly until the colegio had graduated enough students eligible for university education.^[43] In 1847 there were only 61 young men attending the colegio, 19 studying Latin grammar, 19 philosophy and mathematics, 15 law and theology, and 8 medicine.^[44] The develop-

ment of the university faced the same obstacles of virtually every other activity in the new nation—wars interrupted classes, political change affected the availability of faculty, the 1854 earthquake destroyed its new building.^[45] But there was a clear sense of the need to promote higher education, even if (or maybe because) it was meant to reach only a few. As it proved to be difficult to find qualified people willing to serve as faculty for extended periods of time, in 1859 the government had to bring nine professors from Europe.^[46] Despite these efforts, the successes of the university remained rather limited. In 1879 the rector of the university lamented that due to "wars, revolutions, changes, and constant problems, education barely progressed" between 1841 and 1859. As late as 1879 not one single Salvadoran had studied engineering. "It is very regretable," said the rector, "that we do not have a son of the country who can plan a road or a bridge, or who can level a plot of land."^[47] In 1888 only 528 Salvadorans had university degrees, 262 of whom were lawyers (14 of them had honorary degrees). That year the university had 180 students; more than half of them wanted to become lawyers.^[48]

The educational system had the structure of a very narrow and tall pyramid. In 1888, more than forty years after the end of the federation, only 1 in 32 Salvadorans attended primary school, 1 in 530 secondary school, and 1 in 3,820 the university. Even without considering the quality of the education, it is hard not to conclude that the educational system failed to become an engine for growth, much less development. Instead, it helped to perpetuate the inequality inherited from the colonial period. The enormous gap between the educated and the uneducated, between the rich and the poor, was being cast in concrete. This was less of a problem when the main economic activities were traditional ones that could be learned from one's parents and were not subject to great market pressures. When the economy opened to the international markets and when the increase of coffee production introducted new complications to the organization of production, those with an education were in a better position to learn how to profit from the new possibilities. The number of people who had the training to take advantage of the expansion of the export market remained extremely small throughout the century.

Moreover, formal education seems to have been limited to the white and ladino population. In 1868 the American envoy found that "the great mass of the rural population, and of the villages, have been living in profound ignorance of books."^[49] However, miscegenation, greater participation in market activities, and informal education contributed to socialize the Indian population to the white man's world. The smallness of the country made it impossible for any social or ethnic group to be

isolated. "It can be said that among us the Indian race is disappearing," said La Gaceta in 1855. Indians participated mainly in agricultural activities but were not limited to subsistence agriculture.

We have seen that practically each Indian who has converted, so to speak, to the Spanish race, has become a hard working agriculturalist or an intelligent artisan. An example of this is precisely this capital city now of the state. Those who years back were called Indians, who had occupations appropriate to beasts of burden and who only produced maize and beans, are now ladinos, and occupy themselves in the cultivation of sugar cane, coffee, tobacco, and other things more important than maize and beans.^[50]

These observations summarize the conviction prevalent among people in government that there was something backward about the Indian's preoccupation with subsistence agriculture—something that could be overcome by greater contact with the "Spanish race." A few years later that way of thinking would lead to the privatization of Indian communal lands.

The process of miscegenation and acculturation had started early in the colonial period. Even before independence the Indian population comprised less than half of the total. In 1807 Gutiérrez y Ulloa estimated it to be 43 percent. Only thirty years later John Galindo, an Irishman who worked for the federal government, estimated that the percentage had been reduced to 22.5 percent (see table 9). These figures are not necessarily an indication of the actual ethnic composition of the country, since neither author used strict scientific criteria to arrive at his estimate. Rather, these figures indicate their perception of race. The idea of who was to be considered white and who mulatto (or mestizo) had changed with independence. Indians who "had converted to the Spanish race" were considered ladinos. Perceptions changed again when Indians ceased to be candidates for adoption into the "Spanish race" and became competitors for land. After the liberal reforms, when Indian communities were perceived as obstacles to growth and their communal lands were privatized, a semiofficial publication broke down the population the following way: 55 percent Indian, 40 percent ladino, 4.5 percent white, and 0.5 percent black.^[51] It is hard to imagine how the stark differences with the figures for 1837 can be a strictly demographic phenomenon. The country had undergone significant changes, but those changes were more social, economic, and political than demographic. Ethnic distinctions, while still powerful, were giving way to a more modern social differentiation: that between those who had access to power and resources and those who did not. Nothing in the educational system contributed to change this situation.

Transportation The rulers of the new country saw education as only one of their tasks, by no means the most important. Foremost in their minds was the expansion of trade and the improvement of roads and harbors. They were merchants and property owners themselves and had a clear perception of the need for better communications. With the breakup of the federation and the weakening of the ties with the Guatemalan merchants, trade routes began to change and roads had to lead to different places. The governor of San Miguel province stated the idea clearly enough:

The continuation of roads in all the state is, in my judgment, the only way to aggrandize it, creating with the ease of transportation new articles of extraction ...

The governor was convinced that "only facilitating the transportation of our products and merchandise is possible to push forward our agonizing agriculture and commerce," and he devoted most of his efforts to improve the road between San Miguel, site of the most important indigo fair, and the port of La Unión.^[52] The central government had projects of its own. Soon after the breakup of the federation authorities in the capital decreed the opening of a new port in the Bay of Jiquilisco.^[53] Despite the decree, the project never went very far since the site was not economically viable. Government decrees, by themselves, could not accomplish much, and the government, being in the first stages of organization, could not engage in a vast program of public works. Private companies were hired to help with the larger projects. In 1849 the government signed a contract with a private firm to improve the road to the port of La Libertad. At that time only a narrow trail linked the capital city with its closest port. A wider road would have permitted the use of

oxcarts.^[54] Again, good intentions had to face difficult obstacles; it took ten years to start work on the road.^[55]

The road to La Libertad marked the beginning of a new transportation plan. Given the shape of the country, a mountainous and narrow strip of land along the Pacific coast, the central government decided to carry out a very simple transportation scheme: to build and improve roads from production centers to the Pacific ports and to secure shipping services. Since a mountainous geography and torrential rains made land transportation difficult, three ports, Acajutla, La Libertad, and La Unión, were developed. Having three ports, which may seem excessive for such a small and poor country, minimized the need for land transportation. Although this plan had been well known since the early 1840s, it acquired a new meaning with the discovery of gold in California.

From the transportation point of view the Gold Rush was a stroke of luck—the main obstacle of Central American trade, the dismal road system, was considerably alleviated almost overnight. In the past the Pacific ports had languished; few merchant ships visited them. Salvadoran trade did not justify the development of a national merchant marine and did not attract foreign ships on a regular basis. Under these conditions Salvadoran exports had to be sent to Belize or to Izabal through a difficult land route. The government had to offer tax breaks to import merchants to encourage the use of the southern ports.^[56] California's rapid growth changed the picture by stimulating an unprecedented degree of commercial activity along the Pacific coast. Salvadorans wanted to share in the bonanza. As early as December of 1848, after hearing about Aspinwall's project to establish oceangoing service between Panama and California, the government offered Aspinwall's boats free access to Salvadoran ports in order to encourage him to include them in the route.^[57] Reports of the fiebre dorada made the project more feasible. After 1849 Nicaragua and Panama became the favorite routes for easterners eager to go to California, and the possibilities of a trade route through the Isthmus became apparent. The effects on neighboring Nicaragua were visible in a matter of months.^[58] Salvadoran businessmen were delighted, and in 1851 La Gaceta editorialized with glee that

... with the events in California the southern ports have acquired an importance that can barely be estimated. We are beginning to see in small scale a movement that later will surprise us.^[59]

The impact of the Gold Rush on maritime transportation was soon perceived as permanent. In 1853 the governments of Central America

signed contracts with the Central American Steam Navigation Company, an American concern, to establish a monthly service of steamers between Iztapa, in Guatemala, and Panama. The service, which began early in 1854, touched the three ports of El Salvador and was run first by the Panama Railroad Company and later by the Pacific Mail Steamship Company.^[60] The contract established a regular and reliable connection with European markets. With the inauguration of the Panama Railroad in 1855, European ships began to visit the Isthmus on a regular basis. British entrepreneurs established a steamer service between Liverpool and the Panamanian port of Colón and coordinated the arrivals with the steamers of the Panama Railroad Company (PRRC).^[61] Less than five years after the opening of the new route, seven different steamship lines connected Panama with New York, California, South America, the West Indies, and England.^[62] The Panama Railroad line became the main link between the three Salvadoran ports and the rest of the world. In order to secure its services the Salvadoran government paid the PRRC a subsidy of 8,000 pesos per year. By 1865 the subsidy had increased to 12,000 pesos.^[63] Starting in 1856 two steamers, the Columbus (460 tons) and the Guatemala (1,021 tons), touched Salvadoran ports twice a month each, on their way to Guatemala and on their way back to Panama, and vessels from all over the world did business in the Pacific. Whereas before independence only two or three unreliable ships visited Acajutla every year, in 1856, only one year after the opening of the Panama Railroad, sixty-three different ships from England, Spain, the United States, France, Sardinia, Peru, Hamburg, Denmark, Ecuador, Chile, Costa Rica, and New Granada visited Salvadoran ports.^[64] The benefits of the new trade were apparent, and it became necessary to appoint a full-time tax collector in La Libertad and to provide the one in La Unión with extra help during the busy months of November, December, and January.^[65] Trade figures fluctuated widely but nobody doubted that the future would bring only more. A comparison between the five-year averages of the total trade (imports plus exports) carried out during the periods 1854–1858 and 1859–1863 shows an increase of 76.7 percent (see table 10).^[66] In this kind of environment treasury officials discovered that ports could be good business. Besides the increase in import revenues, the government could make a handsome profit from handling the merchandise and storage fees.^[67]

The PRRC steamers became essential to Salvadoran trade, but their service often left something to be desired. They operated at full capacity, and the alternative services provided by other companies did not offer the same advantages; the PRRC had monopoly power over the most convenient route. The company knew that Salvadoran exporters were highly dependent on its services and felt no pressure to accommodate

their needs. There were constant complaints about the abuses of the company. The British consul reported that there was "no end of the injuries and losses which are constantly suffered" by its users.^[68] The PRRC did increase the capacity of its steamers but not by much. After the Columbus sunk in December of 1861, a 1,200-ton steamer named Salvador was added to the line the next spring.^[69] Sometimes the PRRC found it convenient to add a third steamer, but not on a permanent basis. Despite the growth in Salvadoran trade with the outside world, the dependence on foreign steamers established in the 1850s became a permanent fixture of the economy.^[70]

Port development became a priority as a result of the expansion of trade. When the government could not carry out the necessary improvements by itself it gave concessions to private citizens or subsidized private companies. In 1852 it gave a ten-year concession to run the wharf of the port of Acajutla to a gentleman who promised to build a new wooden wharf and a warehouse that was supposed to be the only checking point for merchandise.^[71] Having a government-controlled warehouse was most important since import taxes were becoming a major source of revenue. With the increase in revenue the government could be more aggressive in improving port facilities. Eventually all three ports were endowed with new wharfs. A private company was hired to build one at La Unión in 1868. The inauguration of the first iron wharf at La Libertad took place the following year while workers put finishing touches to a similar structure in Acajutla in 1870.^[72] Even with these

improvements port facilities had serious shortcomings. To unload a ship, goods were hoisted and thrown into big open launches (Indian canoes in the port of La Unión) in a rather careless fashion. Once loaded the launches were rowed to the wharf, a distance ranging from a half a mile to two miles, where the packages were hoisted again to the pier. Needless to say, the system damaged many goods.^[73]

The other side of the transportation equation, the improvement of roads connecting productive areas to the ports, also needed attention. Primitive mule trails had to be transformed into roads wide enough to permit the passage of oxcarts. In the 1850s von Tempsky, a German traveler, described roads that were:

... labyrinthic in their connections, miry and rutty from travel of packmules and creaking carts dragged over them, with piles of merchandise, from January till December ... perfectly impassable during the rainy season. Oxen and ox-drivers are the only animals that will then be able to fathom, dive and rise in, the trembling mass of mud that is called the highway, even then.^[74]

The situation improved slowly. By the end of the decade the road to Acajutla, the most important road for the coffee business, received good reviews. Von Scherzer, who was seldom happy with Central American roads, found it to be "tolerably convenient," and the government made continuous efforts to keep it that way.^[75] In 1859 it was already possible to bring oxcarts all the way from Santa Ana to Acajutla.^[76] The roads from La Unión to San Miguel and from San Salvador to La Libertad received due attention. Any assessment of Salvadoran roads, however, was bound to be temporary, since before macadamization the quality of a road was always at the mercy of the next torrential rains. High maintenance costs due mainly to the prevailing scarcity of labor and occasional political unrest meant that some years roads did not receive any attention. One year of heavy war activity like 1863 could make the road to Sonsonate "impassable even to the heaviest oxcarts."^[77] Moreover, the presence of road bandits further hindered road transportation.^[78] But the heavier use of certain roads made it politically wise to maintain them. In 1864 the road to La Libertad had enough traffic to justify a weekly diligence service.^[79]

Not much could be expected from the government. It barely had enough organization to concentrate on the main roads to the ports. Public works in the interior had to be carried out by private individuals who often got together to repair roads or build bridges. The road from Sonsonate to Ahuachapán, for example, had to be financed by local businessmen.^[80] By the late 1860s, when government revenue had already

begun to increase, the authorities could turn to the improvement of internal roads linking the main towns.^[81] Soon there were plans to establish a diligence service between Santa Ana and Sonsonate and to expand the service to Acajutla to coincide with the arrival of steamers.^[82]

Public works were often (although not always) carried out by foreign nationals. In a country without engineers no one else had the necessary know-how. Edward Hall, the British consul, in association with a Guatemalan colonel and with the help of European workers, built the wharf at La Libertad. Likewise, a French engineer, M. de Bresse, surveyed the road from La Unión to Acajutla. When the time came to engage in more ambitious projects like building an iron bridge over the Lempa River, the government turned to an American company in 1879.^[83] As soon as economic growth began demanding more complex activities, foreigners had to be brought in; nobody at home could do the job.

By the 1860s the government's responsibility for taking care of the transportation system was clearly established and a sense of priorities had been defined. The most dramatic changes in transportation, however, had come from an external source. Developments in California gave life to commercial activities on the Pacific coast and brought, for the first time in history, regular and reliable shipping services to Salvadoran ports. The significance of these changes did not escape the rulers of El Salvador who moved to take advantage of them. The effort was less than smooth. It was interrupted by war activities in 1863 and 1871, constant scarcity of labor, and occasional natural disasters. Nonetheless, through a combination of sheer luck and hard work the mid-nineteenth century became the turning point in the history of transportation in El Salvador.

Revenue

As the state acquired the new responsibilities of building an army, developing educational and legal systems, and improving transportation, it had to establish sources of revenue. To do this it kept old colonial taxes such as import and sales taxes (alcabalas in the colonial terminology), and followed the tradition of state monopolies (estancos) of liquor, tobacco, and gunpowder.^[84] It also resorted to tolls to repair roads, sales of public lands, and port fees. Occasionally, as an expedient means of financing wars, it issued bonds.

Bonds were exchanged in the market at a discount that fluctuated according to market conditions.^[85] Bonds could be used to buy public lands and to pay taxes, and most taxes could be paid with a combination

of currency and bonds. On the one hand, this practice created a problem for the government, since it left it without the ability to control the repayment of the internal debt. On the other hand, it kept the latter at relatively low levels compared to the size of the budget. In fact, bonds were a rather costly way of raising revenue. Market prices of bonds could be so low that when the time came to pay taxes, people preferred to use bonds instead of cash, thus creating liquidity problems for the government. In 1858, for example, bonds sold at a 50-percent discount, and demand for bonds increased because businessmen realized that they could cut their tax liability in half. Bonds became such good business that unscrupulous government officials sometimes recycled bonds that had already been canceled.^[86] Unhappy with the practice, the government decided that if people wanted to pay with bonds the sales tax would be 7 percent rather than 5 percent.^[87] These difficulties with bond financing were part of the larger problem of raising revenue. With the acute political instability that prevailed after independence the destiny of tax money was never clear. With luck it could go to promote the public good; it was more likely, however, to go to finance some hated political cause or, perhaps worse, into the pocket of a petty caudillo. Not surprisingly, tax payments were avoided whenever possible. The federation had never been able to address the issue properly, and it took a long time for the new country to secure a steady source of income.

Government revenue fluctuated widely: in the early 1850s it could go from an annual decline of 15 percent, to a steady year, to an increase of 25 percent. The end result was, on the average, a slow if unreliable growth in state resources. Although the Gold Rush brought a remarkable trade bonanza, the new state found it difficult to benefit fully from the increase in trade. Between 1850 and 1855 the revenue grew at an average annual rate of 3.56 percent, somewhat slower than the growth in imports, the main source of revenue. The situation slowly improved: by 1860 El Salvador was able to reschedule payments on its share of the loans arranged by the federation with the British house of Barclay in 1828, and in the late 1860s government revenue was growing faster than imports with an average annual growth of 6.1 versus 4.9 percent for the 1866–1870 period.^[88] The government's ability to raise taxes increased with better administration, a higher reliance on the easily collected import taxes (the share of custom duties as a source of revenue increased from 27 percent in 1850 to 33 percent in 1855 and to 54 percent in 1868), a better record of accomplishments in public works, and a greater military capacity.^[89] It is no coincidence that tax collection improved in the second half of the 1860s after a strong effort to professionalize the army.

Government expenditures provide a gauge to measure the way in which the government allocated priorities. The army received the high-

est priority. In "normal" years, like 1868, it received around 27 percent of total expenditures. In war years, like 1865 or 1871, it received between 40 and 50 percent, in addition to money borrowed from the public (voluntarily or involuntarily). In the second place we find the service of the debt, around 13 percent in 1868 and almost twice as much twenty years later. It would not be unreasonable to count much of this as expenditure on the army. Public works often received a smaller share than the service of the debt. Education received at most 5 percent.^[90] As we will see later, this pattern worsened at the end of the century when the elite consolidated its power. This pattern of public expenditure exemplifies the disturbing picture that emerged during the second half of the century. As the ruling elite defined the role of the state, starting practically from zero, it discovered the advantages of a strong security apparatus and of public works designed to serve the needs of the incipient export economy, but it neglected the development of people through education. This was a result not necessarily dictated by market signals but, rather, by the elite's interpretation of its long-term interests, by its own sense of priorities.

Conclusion

Much ground was covered between 1841, when the first constitution was written, and the 1880s. After having been just an intendancy of the colonial system and then a state of a thoroughly disorganized federation, El Salvador had to organize itself as a sovereign nation. The institutions of the state were organized after having selectively rejected the institutions of the colonial regime and without having any experience in state building, little knowledge of the law, and nothing resembling a civil service. It was the period when the state took form along liberal lines; it defined its role in the economy and the society, and established the material and institutional basis of government. Pretty much everything needed to be done, and was done, albeit on a small scale. Public buildings were built, the army was professionalized, a legal system was established, treaties were signed, schools were founded, ports were opened, taxes were collected. Although the list is lengthy, the fact of the matter is that accomplishments were real but very limited. They were seen as great only because the point of departure was so low. The small territory, exhausted by war and utterly disorganized in the early 1840s, was becoming a nation, a poor nation.

4
Labor, Land, and Investment 1840–1880

After the long years of warfare attention gradually turned to production. This first period of national reconstruction and consolidation can be set between the promulgation of the first constitution in 1841 and the liberal reforms in 1881. The spirit of the first part of the period is well summarized by the observations made by Carl von Scherzer in 1857:

To heal the wounds inflicted on the country by party strife, to see the abandoned and desolate fields again under cultivation—the culture of indigo, and the trade which had formerly prospered here more than anywhere else in Central America, once more reviving, and to restore the almost annihilated credit of the republic—these were the objects to which all the cultivated or semicultivated inhabitants looked with their most fervent wishes.^[1]

It was difficult to get started. Rafael Carrera, the Guatemalan dictator, interfered in Salvadoran politics causing great instability and making the task of organizing the state very difficult. It took a while before the country could stand firmer and look at the recent past with contempt.

What was the revenue of the state from 1840 until 1844? A pittance, because of poor administration, waste, lack of attention given to this important aspect of public administration, and, above all, the ruin and general poverty, which seem to have estranged commerce and led the spirit of enterprise and agricultural industry into a state of depression; contributing to this malaise was the insecurity and lack of confidence generated by the political situation.^[2]

Slowly the wonders of the industrial revolution came to the country in their more modest versions and opened new windows to the world. In 1852 the elite of San Salvador could enjoy an optical show with still views of Saint Peter's basilica, the battle of Austerlitz, and the canals of Venice. By 1859, young matrons could have their portraits taken with a daguerreotype. The well educated had access to subscriptions to foreign magazines such as El Correo de Europa and El Noticioso de Nueva York which arrived twice a month in the steamers coming from Panama.^[3]

Through foreign publications and occasional visits to Europe the spirit of positivism permeated the ruling classes. Newspapers exalted the virtues of statistical studies of the population and the economy, and a map of the country was commissioned.^[4] The leader of this trend was Gerardo Barrios who in a trip to Europe recognized the need for change. In a letter from Rome written in 1853 he stated:

I urgently needed this trip to correct my ideas and to be useful to my country.... I will return to preach to my fellow countrymen what we Central Americans are and what we can become.^[5]

The people who traveled to Europe were almost by definition members of the elite, and their narrow point of view colored what they learned from their trips. They had little inclination to learn the lessons of the 1848 revolutions; positivist ideas of hierarchy, order, and progress had more appeal to them. The growth of the economy consolidated a landed elite that, imbued with positivistic ideas, proved eager to erase whatever remnants of egalitarian rhetoric were left from the early independent years. La Gaceta published editorials reflecting this stronger class consciousness of the elite. Reflecting on the idea of citizenship the official paper stated:

In the early years of independence the title of citizen was so extensively applied that there was no individual, no matter how notoriously undeserving, who was not honored by that classification ... at that time there was a fanatic cult for democracy, there was a concerted effort to please the mob and to erase all kinds of distinctions ... the title of citizen should be granted only to those with a certain degree of knowledge, and who own such property, wages or earnings that could constitute guarantee of their honesty and their respect for peace and order.^[6]

The "fanatic" cult for democracy was excised from the rhetoric of the elite until well into the twentieth century.

Economic growth and the consolidation of the state had to face serious obstacles. Political instability diminished but did not go away.

The obstacles to growth did not all come from politics, nature took the blame more often than before. The economy had setbacks due to locust plagues, epidemics, earthquakes, and droughts. But international trade offered a strong stimulus and growth followed. The expansion of exports made it possible to break the old vicious circle; in the past the central state's lack of authority led to chaos, wars destroyed the economy, and with a weak economy the state could not raise enough revenue to consolidate. The situation changed with the increase in trade brought about by the Gold Rush. Import taxes became a reliable and fast-growing source of revenue; they were easy to police since they entered through only three ports rather than over porous and poorly defined borders. With a dramatic increase in imports the state finally had enough revenue to finance a strong army. By the end of the 1850s there were reasons for hope: "... the population improves and becomes richer: production has doubled and the spirit of speculation is awakening everywhere," editorialized La Gaceta .^[7]

Labor

Chronic labor shortages characterized the nineteenth century. Even though the population grew steadily, there were not enough people to satisfy the demands of the economy, and producers always complained about the lack of manpower. Even before the opening of the Pacific routes the government had been enacting legislation to force people to work. Vagrancy laws existed in different versions since 1825 when a legislative decree imposed prison sentences on vagrants.^[8] One of the first laws passed after the end of the federation imposed fines on vagrants and forced everyone to carry a document, signed by a reputable employer, that served as proof of employment.^[9] Different police regulations issued in the 1850s insisted that one of the important functions of the police was to enforce vagrancy laws.^[10] The situation worsened later as the export sector expanded faster than the labor force. Between 1821 and 1855 the annual growth rate of the population was about 1.3 percent, and between 1855 and 1878 it was 1.5 percent (see table 11). At the same time total international trade was growing at a much faster rate: its average annual growth rate for the same period was 7 percent. If one compares five-year averages to smooth out the wide fluctuations of the data, one observes an increase of 76.7 percent from the period 1854–1858 to the period 1859–1863, and of 21.6 percent from 1859–1863 to 1864–1868 (see table 10). Despite the obvious shortcomings of the trade data it seems safe to assert that trade outpaced population

growth by a wide margin. This situation created tensions between export agriculture and other economic activities such as subsistence agriculture and public works.^[11]

High demand for labor during the peak of the agricultural season forced public works to come to a halt. In 1855 the governor of Cuscatlán province explained that the lack of labor forced him to interrupt public works during the rainy season (six months), at harvest time (two months), and at the time when indigo was processed (one month). The town of Apaneca experienced a similar situation: "the lack of labor seems to stop the development of public wealth," said the 1858 census.^[12]La Gaceta complained in 1861 that agricultural activities were always wanting for laborers.^[13] The common practice of advancing money to laborers in order to secure their services did not help much. Workers often accepted the advances and later failed to show up. The problem was so widespread that the government felt compelled to send a letter to the governors asking them to enforce the law because of,

... the generalized clamor of agriculturalists and landowners due to the lack of labor that they experience in their activities, because of the frequency with which day laborers break their engagements and defraud the advance payment that they receive.^[14]

As the problem persisted, in 1861 the government imposed sentences of three to eight days' labor on public works on those laborers who did not fullfill their commitments. Those sentences replaced imprisonment, which had proved to be ineffective.^[15] The solution found by the legislators reflects their understanding of the problem. Instead of removing laborers from the field by putting them in prison, they forced them to do work. Not surprisingly vagrants were a rare sight. The wife of the British

consul observed that "there are a few beggars certainly who come regularly every Saturday for their weekly dole but they are as nothing in proportion to the population."^[16]

The practice of weekly contracts and the fact that they were seldom renewed made on-the-job training difficult. This became a greater problem after the introduction of agricultural machinery and complex agricultural techniques.^[17] Efforts to import labor failed. The government gave a concession to a Spanish citizen who promised to bring 1,000 Chinese workers, but the project was never carried out.^[18]

The relative scarcity of labor seems to have given freedom of movement to agricultural workers. The mobility of the labor force equalized wages across the country. In 1858 an agricultural worker in the town of Suchitoto earned two reales per day.^[19] The same year Ilobasco wages were reported to have been "no different than in other towns."^[20] A decree issued in 1852 to help solve the problem of scarcity of workers for public works ordered every male between fifteen and fifty years of age to work two days every year building roads. Those who wanted to avoid the indignities of manual labor could do so, for a fee. They could pay another person or pay a fine of four reales, equal to the wage rate observed in Suchitoto in 1858.^[21]

Most workers labored in agricultural activities. In fact, agricultural employment increased over time. In 1807 Gutiérrez y Ulloa recorded the occupations of the entire male labor force, 76.5 percent of which was engaged in strictly agricultural activities.^[22] Fifty years later the proportion was even higher: the 1858 census of Santa Ana province showed that 85.2 percent of the working men were engaged in agriculture. In Cuscatlán province the equivalent figure was 88.9 percent. (See tables 12 and 13.) A later census made in San Vicente province in 1878, shows

that of the 5,026 economically active men who lived in the city of San Vicente, 60 percent worked in the countryside, a very high rate for city dwellers.^[23]

Nonetheless, population growth was enough for cities to grow, for markets to develop, and for a greater division of labor to take place. In 1807 Gutiérrez y Ulloa listed only twenty different occupations, whereas in 1858 the census of Santa Ana province alone registered twice as many. At that time Santa Ana province had more masons, carpenters, tailors, and shoemakers than the whole country had in 1807.^[24] In Sonsonate, the municipal census of 1853 recorded forty different activities, ranging from lawyers to day laborers. The most common occupations for men outside agriculture were domestic service, tailoring, shoemaking, retail trade, and brickmaking. Women outside agriculture were more likely to be seamstresses or maids. The census seldom acknowledged their contributions to agriculture, but it is hard to believe that they did not play an important role working in the fields.^[25] The larger cities became relatively more sophisticated places and provided a variety of services. In 1858, Sonsonate, the closest commercial center to the growing port of Acajutla, had thirty-two retail stores, four pharmacies, eighteen grocery stores, ten carpentry shops, twenty-two cobbler shops, twelve looms, five brick ovens, and two flour mills. The relative prosperity of Sonsonate must be understood in the proper context: in the whole country there were no more than five towns of the same size. It was located in a prosperous region that produced indigo and coffee, and had the best conditions for raising cattle. However, it exemplified the beginnings of urban life in the country.

Towns were growing and with them the number of artisans and construction workers. San Salvador, which in 1839 had around 15,000 inhabitants, by 1865 had more than doubled its population. Belot reported that in that year it had approximately 35,000 inhabitants.^[26] In 1858 Santa Ana City had 20,845 inhabitants, more than San Salvador

had had twenty years earlier. It was a very tentative kind of urbanization; strong links to agriculture remained. Cities provided the types of services necessary to sustain the growth of commercial agriculture, and manufacturing activities were very basic. According to the 1858 census, 33 percent of the inhabitants of Santa Ana province lived in the city of Santa Ana, but 85.2 percent of the working men of the province worked in the countryside.

Wages in the cities and small towns were comparable to those in the fields. Domestic servants earned wages similar to those of day laborers, and presumably the occupations were interchangeable. A male servant in the town of Suchitoto in 1858 earned thirty-two reales a month plus food and shelter, not very different from the two reales per day plus food that he would have earned working in the fields. Women earned less. A cook earned between twelve and sixteen reales a month, and the maid in charge of running errands made between eight and ten reales. Skilled workers had better wages and were more urban in the sense that they were less likely to exchange their jobs for worse-paying agricultural jobs. A carpenter or a smith could expect to make twice the wage of a day laborer and about the same as a tailor or a shoemaker.^[27]

In the absence of good price series, it is impossible to make comparisons of the purchasing power of 1858 wages, but a comparison with data for the beginning of the century suggests that the diet of the Salvadoran labor force had improved. In 1807 Gutiérrez y Ulloa reported a production of 116,157 fanegas of maize to feed a population of 165,278.^[28] This means that the annual consumption per head averaged 0.703 fanegas (80.82 kgs.). In 1858 the governor of La Paz figured that each individual in his province needed five medios of maize per month and, comparing that estimate to the production of the province, he concluded that there was a surplus. The governor's estimate is equivalent to an annual consumption of 2.5 fanegas of maize per head, 3.5 times the amount of 1807. In the same year Santa Ana province produced 208,600 fanegas of maize for a population of 57,844.^[29] If all the maize was consumed in the province, the average annual consumption would have been 3.61 fanegas per head. Another indication of the abundance of maize is the fact that its price was down from 3 pesos/fanega in 1807 to an average of 1.86 pesos/fanega in 1858, a year when the expansion of international trade had already been felt. Nonetheless, the equilibrium of food consumption was somewhat precarious and consumption could vary widely year to year. In 1878 Castro estimated that in San Vincente province annual consumption of maize was 1.21 fanegas per head, more than in 1807 but less than in 1858.^[30] Sometimes natural disaster struck causing widespread hunger. In 1854, for example, there was a big earthquake and a locust plague which brought widespread famine. "This 1854

was a melancholy year for Central America" wrote the wife of the British consul, "for after the earthquake came a famine, the corn crops being destroyed by locusts that came in millions." The following year the suffering was still vivid. La Gaceta commented on "the horrors of the hunger that we were unfortunate to suffer last year."^[31]

The equilibrium was precarious indeed, but, no matter how precarious, food seems to have been on the average more available than before independence. Labor being scarce, rural workers had some leverage and their living conditions could improve. Property owners were not necessarily happy with the arrangements. In this instance the American consul was an articulate spokesman for employers when he reported that labor was unreliable "owing to the indolent habits of the people, and the almost costless means of subsistence to the lower classes."^[32] Enforcement of vagrancy laws, however, reminded everyone of the alternatives to market arrangements and wage bargaining: the power of the state could impose the rules of the game and even change them. Part of the leverage of agricultural workers was their access to land and to inexpensive food. They could always go back to their ejidos or communal lands. When the export sector gained in importance resources moved from food production to coffee production, and a fierce competition for land began.

Land

The expansion of trade also affected land use and ownership. During the first half of the century the nature of land ownership did not vary much from what prevailed during the colonial period. The land of the country was divided into private haciendas, town land (ejidos), communal lands (which belonged to Indian communities), and public lands (terrenos baldíos); by the end of the century most land was private. Since the 1850s the state carried out an important effort to sell public lands and finally, after 1880, it eliminated ejidos and communal lands as forms of property holdings. Haciendas and coffee fincas emerged triumphant at the end of the century.^[33]

The activities performed in haciendas changed little during the first half of the century. They followed ancient patterns established during the colonial period. In 1847 La Gaceta described a big hacienda offered for sale:

[It] has about 70 caballerías , most of it flat and very fertile and good for all types of agriculture with plenty of water of good quality and unsurpassable for cattle raising. Its buildings are large and good for processing indigo as well as sugar. It has a chapel and a sacristy and everything is in

good shape, the same as the obrajes and tanks with a daily capacity of 300 cargas . Besides, there are two obrajes of 100 cargas capacity that still need a little work to get them ready.

There are 40 mules and 100 oxen, 16 oxcarts, 80 boxes, wheels and other things necessary for processing indigo. For processing sugar there are 2 sugar mills, 3 boilers, 150 foreign molds and everything else. In the current state it is estimated that it is possible to produce from 1,200 to 1,500 arrobas of sugar. The hacienda has 500 heads of cattle and 100 horses. There are various pasture lands, some of them fenced with stone.^[34]

This was a big and rich hacienda, wealthier than most, and it is quite possible that the advertisement included a bit of creative marketing, but in its wealth it gives an idea of what could be expected of properties in rural El Salvador. Indigo had to be mentioned first, but many other activities deserved mentioning. Sugar and cattle raising were also important. All the implements necessary to process indigo and sugar and to take those products to the market were present at the hacienda. Gradually they had accumulated a substantial amount of capital: tanks to process indigo, sugar mills, buildings, and livestock. The abundance of cattle suggests plentiful land. In fact, in the late 1840s prime land in El Salvador sold for lower prices than comparable land in Costa Rica or Guatemala.^[35] No mention is made of the labor force because it was in no way attached to the land. The land produced many things: cash and export crops coexisted with basic foodstuffs. Staple foods, maize and beans, were produced not only in haciendas but in ejidos and communal lands in every corner of the country. Almost all the towns surveyed in the 1858 census mention cereal production. Half of the districts covered by the census mention cattle raising.

Until the 1860s, when the increase in international trade began putting pressure on land, haciendas, ejidos, and communal lands played equally important roles in production. Ejidos were considered to be an essential component of a town. The authorities of the federation had restated the Spanish concept of the ejido with an 1827 decree that endowed with land "towns that do not have enough for their agriculture." Moreover, the law even considered the possibility of "taking the property of a private citizen" if necessary to create an ejido, in which case the owner of the land would be compensated.^[36] There is evidence that Salvadoran authorities complied with the law. When after the earthquake of 1854 the town of Nueva San Salvador was founded, the legislature endowed it with its corresponding lands "considering that its inhabitants will need land in the ejidos for their plants and gardens."^[37] In 1858 San Vicente received 30 caballerías of land for its ejidos and in 1859 Jutiapa received nine caballerías for the same purpose. Ejido lands produced

not only foodstuffs but also indigo and other commercial crops. The ejidos of Rosario de La Paz had very good obrajes and in 1858, as they were underutilized, the mayor decided to open their use to newcomers. The inhabitants of La Paz cultivated indigo and cereals, and raised cattle in their ejidos. When necessary, the municipalities enlarged their ejidos by buying more land. In 1858 the municipality of Guayabal bought communal lands from neighboring Indian towns in order to increase the size of its ejidos.^[38]

Although there was no qestion that the ejidos played an important economic role, land was becoming more valuable. By the 1860s the idea of endowing new towns with ejidos was losing support with liberals under Barrios. (Earlier in their term, they had provided many towns with land.) First they began regulating the creation of new towns. They thought that the "creation of new towns is pernicious when it is done by founders who do not have the necessary elements to maintain their municipal existence." Therefore they decreed in 1862 that as a condition of creating a new town the population either had to prove that they had their own land or had to buy it.^[39] A few days later the legislation that regulated the allocation of new ejido land was abrogated. One can only speculate that with land becoming more valuable, a clever way to acquire some was by creating a new town and then asking the government for ejidos.

Communal lands were also a live and viable institution for most of the century. Indian communities were sometimes accused of owning the most fertile lands in the country, and there was a constant friction between municipal authorities and the communities, since communal and ejido lands were often side by side and limits were not always clear.^[40] In 1867 the government tried to mediate in these kinds of conflicts and the Senate authorized the executive to grant municipalities the right to intervene in the administration of communal lands. That provision was modified two years later when the president gave legal representation to Indian communities that owned land "independent from municipal ejidos" and ordered them to appoint their own representatives.^[41]

Those conflicts were never fully resolved. When the liberals came back to power after Dueñas's defeat in 1871, the government was less sympathetic to the plight of the communities and less willing to mediate. Conflict was more likely to become violent, as happened in 1875 when the Indians of Dolores Izalco rose in arms and assaulted the garrison of the city of Izalco.^[42] But while they existed, communal lands participated acitively in the economic life of the country. Their activities were not limited to subsistence agriculture. The Indians of Santa María Ostuma, for example, had bought their communal lands and used them to produce tobacco for the market and cereals for themselves. In the communal lands of San Pedro Nonualco there were one hundred sugar mills.^[43]

At the same time the government was very active selling terrenos baldíos. Ejido lands left unused by the disappearance of the town that they were supposed to service were also sold. When the publication of La Gaceta began in 1847, it carried periodic advertising of sales of terrenos baldíos. Land sales were not an exercise in generosity or social policy but a revenue-raising operation. Public land was also used to redeem government bonds.^[44] In order to speed up sales the government passed legislation encouraging people to identify and claim baldíos, offering as a reward a percentage of the land. The percentage varied from 25 percent for properties under 20 caballerías to 5 percent for properties over 1,000 caballerías. To discourage abuses surveys were carried out by five government-appointed surveyors who were paid a fee established by law.^[45] Public land was sold at market value in public auction. A terreno baldío in a choice location between San Salvador and Santa Tecla could be sold for five hundred pesos per caballería, whereas a baldío in faraway Metapán could not be sold for more than thirty pesos per caballería. The former ejidos of Cuscatlán, which can be reasonably assumed to have been cultivated, were offered at six hundred pesos per caballería.^[46] Private land was sold at similar prices. A private hacienda in Metapán was valued between thirty and sixty pesos per caballería, a price similar to that of the baldío. A baldío in San Vicente was priced at three hundred pesos per caballería and a hacienda in that same area was valued at 350 pesos.^[47] There was an active land market, and the government was more than willing to take advantage of it. In 1860, ten out of fifteen land cases handled by the governor of Santa Ana were baldío claims.^[48] Renting land was also common. In 1858 the powerful Guatemalan family of the Aycinenas advertised in La Gaceta that it wanted to rent three haciendas in El Salvador.^[49]

The constant entry in the market of terrenos baldíos kept land prices more or less constant and permitted the expansion of haciendas and fincas to satisfy the expansion of exports. Without detailed information on land quality or transportation costs to the nearest market, it is difficult to interpret the meaning of the land prices advertised in La Gaceta ; however, one can observe that year to year land prices remained within the same range until the late 1860s. Marginal land had a price around 20 pesos per caballería, whereas the best cultivated land in a choice location had a price around 700 pesos per caballería (see table 14). However, warning signs appeared on the horizon. The abrogation in 1862 of the law that ordered the creation of new ejidos was only the first. By the late 1870s, when most terrenos baldíos had been sold, it became clear that further expansion would not be painless. As we will discuss later, the local elite felt the need to claim ejidos and communal lands.^[50] Public land sales constituted the only escape valve in the system, but they reached their limit. The expansion of international trade

put heavy pressure on land and all the other factors of production. When the escape valve disappeared the elite had already consolidated in power and, as we will discuss later, used the legislature to change the rules of the game by privatizing all land.

Investment

The bottleneck in the credit market appeared much earlier than in the land market. There was plenty of reason for this since the troubled years of the federation and beyond had retarded the development of credit practices and institutions. As trade with the outside world increased, so did investment opportunities. But without a banking system and with outmoded laws, obtaining credit was a cumbersome process with high transaction costs. Credit operations were difficult and informal, although by no means negligible. In the absence of institutions, human ingenuity played a major role. Importers used a complicated credit system called habilitación based on discounts on the invoice price. An 1855 report of Great Britain's Board of Trade describes the operation in detail:

Business is carried on by the importers in the following manner, viz.: they sell to the resident merchants at about 80 percent, upon invoice prices payable in 12 months, either in part cash, part indigo, or all in indigo, at the current price of that article at the time the payment becomes due, or its market value at the time of the purchase. Those again dole out small invoices to the smaller shopkeepers, also upon long credit, and so every business is done upon trust; a cash sale of 3,000 dollars pesos being seldom heard of.^[51]

The 20-percent annual interest rate in real terms (in cash or in indigo) in the transaction described above was consistent with the 18-percent interest offered to the charity board in 1849.^[52] High interest rates persisted during the period under consideration. In 1865 the French traveler Belot found monthly rates of 1.2 percent.^[53] These practices were still very much alive in 1878. In San Vicente province indigo growers sold their product at the beginning of the year, before collecting the crop, and promised to deliver it ten months later, just before the fairs. They used their haciendas as collateral in transactions that amounted to borrowing money at an annual interest rate of up to 30 percent.^[54] It was a system that permitted foreign credit to trickle down to small producers but at considerable cost. Risks were high and, given the small amounts involved, transaction costs were also significant.

High interest rates, coupled with the scarcity of labor, go a long way to explain the problems of investing in permanent crops such as coffee. Nonetheless, informal arrangements eased the difficulties involved in the process. Informal arrangements had to rely, almost perforce, on personal knowledge of the borrower, making credit operations much easier for the members of the elite. The obstacles for a member of the lower classes to start a business career can only be imagined. A person with connections and of recognized honesty could obtain good deals, and knowing the right person could make the difference between obtaining credit or not.

Dr. Manuel Gallardo's credit history illustrates the advantages of being somebody. He was a young doctor descended from indigo planters from Suchitoto. Able to save enough money to further his education, in 1855 he decided to go to Paris. As there were no banks that could make financial arrangements for him, he had to search for a reliable friend who was willing to borrow his money and send the interest to Paris. The system worked, and he returned from Paris with the enhanced reputation of a man educated in Europe. After a period as rector of the university the young professional decided to start a coffee plantation, the latest thing in business ventures. To select the land he could count on advice from his friend Juan Rafael Mora, a former Costa Rican president cum coffee planter who was in El Salvador as an exile.

But coffee production required a considerable investment, and the trees did not produce revenue until the fifth year. Dr. Gallardo ran out of money. His credit needs were satisfied through his good connections; by that time he had already been a minister and advisor to presidents, and he was a good risk. Commercial houses in San Salvador gave him merchandise payable in twelve months. He resold it, and did so "at great profit." When that was not enough he decided to borrow from a friend who charged him a rate below the market rate and gave him enough time to pay. Dr. Gallardo's finca was a success story. As of 1990, his descendants, among them former ambassadors and cabinet members, are still prospering. Obviously, someone like Doctor Gallardo, a prosperous professional and able entrepreneur with a career in government, was a better risk than most borrowers. His generous friends were doing good business by lending him money.^[55]

Mortgage credit played a role in financing commercial activities. In 1860 there were 154 outstanding mortgages in San Salvador province. Their average value was 1,301.47 pesos and their standard deviation 1,917.85. About a third of all mortgages (52) were secured by urban houses, and the rest by agricultural land including, on one occasion, ejido land. They also included indigo obrajes and sugar mills. Credit obtained by mortgaging property was used for various purposes. Some 28 percent of all mortgage loans were used to pay for the security deposit needed to obtain a license to sell liquor, a lucrative state monopoly. Only 3 percent of the total credit was specifically mentioned to have been used to finance indigo businesses and none for coffee, a new kind of operation of unknown risk.^[56]

There are similar data for San Miguel province. In that region there were thirty-one outstanding mortgages with an average value of 1,265.55 pesos and a standard deviation of 2,184.91. Most of the mortgaged properties (65 percent) were houses, and the rest rural property including, as in San Salvador, ejidos, obrajes, and sugar mills. In this region, one of the main producers of indigo, only one mortgage was used for an indigo business. Most of the credit was used to pay personal debts or security deposits.^[57] These data strongly suggest that mortgages were used mainly for urban businesses, a practice that is understandable at a time when land deeds in rural areas were, to say the least, a very confusing matter. Thus, agricultural production was largely financed by future sales in the manner described above.

The government participated in credit transactions by borrowing from the public. As mentioned before, it sold bonds that circulated freely and even used them to pay for goods and services. They were attractive because they could be used to pay taxes and public lands at a discount. Commercial houses bought and sold bonds at a discount. Their use was so common that they had a great degree of liquidity and,

since they could be endorsed to others, had some of the properties of money.^[58] They helped to ease the scarcity of currency. The country had no currency of its own; gold and silver coins from North and South America were used for local transactions, and the scarcity of coins was such that cocoa beans and even eggs were often used as a means of exchange for articles of small value.^[59]

Credit difficulties slowed the process of capital formation but did not stop it. When Gutiérrez y Ulloa prepared his report there were hardly any machines in the country and the amount of cattle was very limited. In 1858 sugar mills were spread throughout the country. Santa Ana province had 9 imported sugar mills and 166 made in the country. The typical hacienda had obrajes to process its own indigo. The number of construction workers had increased substantially, which means that more houses were being built. Slow investment in agricultural machinery was not only a matter of credit but also had to do with technological problems. Simple sugar mills (trapiches) consisted of two vertical wood cylinders that rotated crushing the sugar cane. They were inefficient but easy to operate and repair, whereas imported machinery needed maintenance and parts, two extremely rare elements. It took a lot of courage to invest in a steam engine without knowing whether it could operate long enough without interruption to be profitable.^[60] The wife of the British consul noted that,

Machinery is beginning to be introduced into Salvador, and would be more so if there were more clever mechanics settled in the country; but people are afraid of spending much in machines when there is no one capable of repairing them when out of order.^[61]

Even more, brave investors sometimes spent a great deal of money on heavy machinery only to find out that it could not be transported from the port to its site. As late as 1894 exporters were warned:

Machinery destined for this country should be made in as small pieces as practicable. The road from La Unión to San Miguel is strewn with heavy pieces of mining machinery, big iron shafts, blocks of granite and marble for monuments, etc., which have never reached their destination. At this date there is actually a boiler at the foot of the pier at Acajutla under 12 feet of water, which broke the chains with which they were hoisting it from the lighter. It is sunk, probably never to be recovered.^[62]

There were modest local attempts to make up for the lack of foreign machinery. In 1859, La Gaceta reported that a Costa Rican carpenter living in Nueva San Salvador had built and installed a water-powered sugar mill that worked "perfectly."^[63] But the use of water power could

not be extensive in a country where rivers are small and vary greatly between dry and rainy seasons. Small shops built simple agricultural machinery. In Santa Ana there was a shop that specialized in making wooden sugar mills, molds for sugar, machines to process coffee, oxcart wheels, and the like.^[64] In the late 1860s sugar exports to California had increased enough to permit the importation of steam machinery for sugar mills.^[65]

Capital formation did not take the form of complicated machines or the development of an incipient industry; the country had a long way to go before reaching that stage. Instead, investment was directed to bringing new land into cultivation, building facilities, installing modest sugar mills and indigo obrajes, starting coffee plantations, and improving transportation, all of which made possible the expansion of foreign trade.

Conclusion

During the early years of the century, the context in which the state defined its role somewhat softened the trend toward greater inequality. The constant need to finance wars and the use of forced loans tended to equalize income. Labor scarcity, aggravated by the needs of the army, gave some leverage to workers, and competition for land was checked by the availability of terrenos baldíos. The limited technological, monetary, and organizational demands of traditional agriculture made it possible for all sectors of the population to engage in it. However, the equilibrium was quite fragile; it was to be upset by the two key developments of the second half of the century: the expansion of exports and the consolidation of the state. The combined action of these developments meant that the ability of labor to obtain its share of the economic pie would be greatly diminished. Labor's bargaining power depended on its relative scarcity, which, in turn, was determined by its natural growth and its access to land. The expansion of coffee production put great pressure on land, particularly land located in the western region where conditions were excellent for coffee production and ejidos and Indian communities were strongest. Market forces and, later on in the 1880s, the new legislation of the liberal reforms reallocated land and increased the numbers of landless laborers.^[66] Moreover, the consolidation of the state and its coercive apparatus made it easier to enforce vagrancy laws. With greater numbers of people in the labor market and a stronger army, plantations would have a steady supply of cheap labor.

At the same time, the increasing importance of coffee production exposed the limits of existing credit mechanisms. Since it took years for

coffee trees to become productive, future planters depended on credit to get started in business. Given the informal nature of the habilitación system, the members of the elite who had a good name, business contacts, and the ability to make a good impression on foreign merchants, were in a privileged position to obtain funds. Things were different for those who worked their ejidos or communal lands. They did not have friends or relatives who could offer a helping hand, and strangers would find it difficult to lend them money. What guarantee did they have to offer? How would a foreign merchant assess the risk of lending money to an illiterate member of an Indian community?

The export sector eroded traditional forms of land tenure before it had any impact on the development of a banking system. The authorities of the emerging state were better equipped and more inclined to enforce vagrancy laws and to change the legislation that regulated land tenure than to provide credit to would-be planters. When coffee production began in earnest, the situation of the labor, land, and credit markets was such that a greater specialization in coffee exports would weaken labor, worsen the distribution of land, and allocate credit only to a tiny minority.

5
The Opening of the Economy 1840–1880

The expansion of the export economy financed and shaped the organization of the Salvadoran state. El Salvador created itself as an independent nation in an environment of increasing openness to the outside world. Key internal decisions were responses to developments taking place thousands of miles away: gold diggers in California and railroad builders in Panama changed the direction of Salvadoran roads, a distant war in the United States turned everybody's attention to cotton production, indigo planters became coffee planters. As international trade changed the face of the nation, subsistence agriculture played an increasingly smaller secondary role. Production was meant for the market, all land had to become a commodity, and all labor had to be up for sale. El Salvador was a small country; it had no place to hide from the forces of the market.

Internal Trade

Internal trade expanded during this period. The distribution of goods was carried out through a network of large annual fairs, smaller fairs, peddlers, Sunday markets, and city stores. Indian communities participated actively in the trade network as suppliers of cereals, vegetables, salt, handicrafts, and much more. There is no substance to the allegations that Indian communities were an obstacle to growth because their traditions encouraged uneconomic behavior, or because they only wanted to produce food crops. The behavior of the prices of the goods

that they produced suggests a brisk participation in the market. As they bought and sold maize, rice, and beans, the prices of these products reached the same levels across towns. Prices in 1858 showed little variation in different western towns, which indicates an active market for goods produced mainly by Indian communities. Table 15 shows the average and the standard deviation of the prices of maize, rice, and beans in the towns of the western part of the country covered by the 1858 census. The census gives only one price for each town, so that the number of towns is equal to the number of observations. As the table shows, the standard deviation is more or less a third of the average price; prices did vary from town to town (they were not set by custom), but the change was relatively small. Obiously, high prices of one product in one town would attract more supplies, and prices would tend to level. The towns included in the census were all located in the western part of El Salvador, a region that covers approximately a third of the territory of the country and, consequently, distances between the towns were small. Nonetheless, it is possible to say that a substantial amount of the price differentials in the data were due to transportation costs. (More information on transportation costs is given in the next section of this chapter.) The existence of active food markets is hardly a surprise to anyone, but in the case of El Salvador, where the territory is very small, the extensive use of exchange indicates that it was very difficult for any group to be isolated from the market.

Communal lands and ejidos were not devoted exclusively to subsistence agriculture. Trade and cottage industry were very much part of the rural economy. In the bigger towns there were fairs where many goods were traded. San Juan Nonualco, a predominantly Indian town, bought its food from other towns and concentrated in the production of hides, mustard, indigo seed, earthenware, and brown sugar. According to the 1858 census, the value of the nonsubsistence products was 48 percent of the value of the town's production. The main economic activity of

Guaymango was salt production; its inhabitants exchanged salt for foodstuffs and clothing. Other towns combined subsistence production with cottage industries. In Tenancingo, for example, peasant families, after tending their plots, manufactured straw hats to sell in the Sunday market and to export to Guatemala. San Pedro Puxtla produced almost 300,000 straw hats every year, and La Paz produced rebozos (cotton shawls). Besides producing maize and beans, the inhabitants of Ataco tanned hides, made leather chairs, baskets, and rope. If these towns did not devote their labor and lands to subsistence agriculture, it was not because suitable land was unavailable (with enough effort almost any land can produce maize) but because the existence of markets offered them alternatives and allowed them to profit from their comparative advantages in other economic activities.^[1]

If Indians had an active participation in the market, the upper classes were not left behind. Apart from agriculture, commerce was the most important economic activity. Mrs. Henry Grant Foote found that "everyone from the President downwards keeps a shop, and no one objects to appear behind his counter and sell you a reel of cotton, the wives and daughters often officiating in the same capacity."^[2] Mrs. Foote's amazement with that peculiarity of Salvadoran society led her to devise a curious classification of social classes. In her view there were "only four classes besides soldiers in Salvador—great shopkeepers, little shopkeepers, servants, and agriculturalists."^[3] Another important outlet for trading goods were the annual fairs. The main fairs traded primarily with indigo and imported goods. At these fairs merchants purchased a year's supply of imported goods, a practice that was made necessary by the fact that vessels arrived annually. As fairs gathered large amounts of people with abundant cash they were also an excellent place to exchange all other kinds of goods. The main fairs, such as San Miguel's, attracted businessmen from all over Central America, and several vessels from South America arrived with merchandise at the nearby port of La Unión. Goods sold at the fair were "taken round Cape Horn by French, German, and English merchants, chiefly the latter, to the Bay of Fonseca on the Pacific." Two-thirds of the trade of Honduras was supplied by this fair.^[4] It was said that "At these fairs more business is done than in all the rest of the state during the remainder of the year."^[5] Indigo, cattle, mules, horses, fruits, imported goods, books, everything was bought and sold.^[6] As international trade expanded, so did the volume of transactions and the number of fairs. Big fairs like San Miguel's made sense because of the lack of regularity of shipping services; when the PRRC steamers began their bimonthly visits, the practice of purchasing for the entire year became obsolete.^[7]

Not all fairs were created equal, the annual fair of San Miguel

attracted international businessmen while the fair of San Vicente, held every three months, attracted fewer indigo dealers than peddlers or Indian peasants with food products. Lesser fairs dealt more with local than with imported products and, despite the efforts of the government to coordinate their activities, competed against each other. Established fairs were an opportunity for municipalities to make handsome profits by renting spaces in the central square while new ones had to struggle in order to establish themselves and attract business. Local authorities used aggressive marketing: when the fair of Suchitoto was authorized by the government in 1859 it offered rent-free spaces for three years.^[8] At the bottom of the scale were the small-town Sunday fairs that lured "caravans of Indians arriving by foot, by horse, by mule, in gangs of five, ten, twenty, fifty," to peddle their agricultural produce.^[9] In 1857 the French consul counted nineteen annual fairs spread all over the country.^[10] The more remote parts of the territory were serviced by peddlers (buhoneros) whose activities were so widespread that in 1856 the government was compelled to regulate them.^[11]

The commercial importance of the fairs, the amounts of money that circulated there, and the quantities of people that they attracted, made them tempting to unscrupulous people. Aware of the problem, local military forces, very much in tune with the free market attitudes that were sweeping the economy, offered their much needed protection for a fee. The practice became so abusive that it amounted to extortion. In 1851 the Ministerio General had to issue an order stopping it and pledging that all expenses in security for the fairs would come from the public treasury.^[12] This event highlights not only the commercial importance of the fairs but also the efforts of the state to become more institutionalized and provide security to economic activities. Chatfield, the British consul, was perfectly aware of the fact that the fairs were crucial to the Salvadoran economy. When he wanted to use gunboat diplomacy to promote the interests of his country, he made sure that it hurt. He ordered blockades of La Unión in 1842, 1849, and 1850, timing them to coincide with San Miguel's November fair.

External Trade

Before the Gold Rush opened new opportunities, exports per capita were relatively modest; they amounted to less than two pesos in 1855. In less than four decades they had increased more than fourfold (see table 16).^[13] Undoubtedly the opening of the markets was significant. At the middle of the century the main export product was indigo. In 1855 it

accounted for 86.30 percent of Salvadoran exports. Other exports tagged far behind; they were, in order of importance: hides (4.14 percent), tobacco (3.64 percent), balsam (2.83 percent), and much smaller amounts of silver, rebozos, sugar, coffee, and other minor items. The data available for this period only include products exported by sea and do not take into account the considerable trade that took place over the borders, in particular the trade through Belize, which was still important and included a substantial amount of indigo.^[14] In 1856 the British consul reported that about 32 percent of the indigo crop was exported via Guatemala and Honduras.^[15] The position of indigo as the prime export was unquestionable. By the 1870s indigo exports were being seriously challenged by a powerful newcomer: coffee. It was a gradual but steady process; in 1874 indigo exports were, for the first time, less than half of total exports, even though the number of pounds exported was higher than in 1855. Coffee exports, which had begun in 1855, reached 35 percent of total exports in 1874 and 80 percent in 1892. The development of trade with the rest of the world was possible thanks to the changes in transportation described in chapter 3. Lower freights, shorter routes, and better shipping services opened new possibilities. In the early 1850s indigo exports to England could follow two routes. They could either be shipped from one of the Pacific ports and go around Cape Horn or be sent by land to Belize and then shipped to England. In 1852 it took from 110 to 150 days for vessels following the Cape Horn route to reach England.^[16] The Belize route took, with good luck, somewhat less time (84 to 115 days). Goods had to be taken from El Salvador to Lake Izabal by mule, and then they were shipped to Belize and transshipped to Liverpool. Table 17 shows the costs in time and money involved in this route. It was three times more expensive to take goods from El Salvador to Belize than from Belize to Liverpool.

The situation started to change with the inauguration of the steam-

ship service between Central America and California in 1854 and the Panama railroad in 1855. Already in 1858 a "considerable portion of the indigo crop" was exported by steamer via Panama.^[17] The Panama Railroad Company and later the Pacific Mail Steamship Company offered through-bills of lading from Central American ports to Liverpool, including all the costs involved in crossing the Isthmus by railroad and transshipping of goods. In 1859 the cost of shipping a 150-pound seroon of indigo by steamer to Liverpool via Panama was six pesos, less than half of the cost of shipping via Belize seven years earlier.^[18] Moreover, the time of the trip was reduced to two months, or almost in half. Ships operating the Cape Horn route had to cut prices to remain competitive. Given the high interest rates that prevailed at the time, the long duration of the route (five months in 1860) was a serious problem for exporters who had to wait for months before selling their products. By 1860 freights for the service around the Cape were a little less than half that for the Panama route. A comparison between both routes taking into account interest rates and insurance costs shows that the Cape Horn route managed to remain competitive with lower prices.^[19] In less than ten years Salvadoran producers saw freights and shipping time cut in half and much more regular shipping services. The reduction of time between shipment and sale had economic advantages beyond the savings in interest. La Gaceta printed an insightful analysis of the problem:

Against this [freight] difference it is necessary to keep in mind the loss of opportunities in the market, about three months during the best part of the year, besides keeping funds idle and, as a result, loss of interests, difference in market prices when the goods arrive and other considerations that have some importance.^[20]

Transportation costs did not fall as much as they could have, partly because of high demand for the services of the Panama railroad and the monopolistic practices of the company that ran it. A former employee of the company that built and operated the railroad explained the rate policies of his company with remarkable candor:

These rates, said Colonel Center to me, long afterwards, were intended to be, to a certain extent prohibitory, until we could get things in shape. As soon as we were on our own feet and ready for business we could, as I wrote the President, gracefully reduce our charges to within reasonable limits. For it's always pleasing to the public to have prices come down rather than rise.

To his surprise, these provisional rates were adopted; and what is more they remained in force for more than twenty years. It was found as easy to get large rates as small and thus, without looking very much to the future, this goose began to lay golden eggs with astonishing extravagance.^[21]

The contribution of changes in transportation costs to economic growth during the nineteenth century is a well-established theme in the literature. In the case of El Salvador it is tempting to establish a parallel between the effect of drastic freight changes experienced by Salvadoran producers in the 1850s and the benefits derived from the construction of railroads in other countries. There are analytical differences that need to be taken into account. Freight changes were not due to an investment project carried out within the country; therefore the analysis is not really a project-evaluation problem. It is more a change in consumer surplus derived from a change in an international price. A simple and inaccurate way of calculating it (see n. 22) would be by calculating the cost of transporting the 1865 crop via Belize and comparing it to the cost of transporting the same crop via Panama. The difference, that is, the social savings due to changes in freight rates, is an amount of 70,635.53 pesos, 5.1 percent of the value of indigo and coffee exports in 1865. This figure is clearly an upper bound since it does not take into account that the demand for shipping services would have been less at higher rates.^[22] Five percent of total exports could not have meant much in terms of the total national income. Moreover, the government subsidized Panama Railroad steamers at a rate of 8,000 pesos per year. It is clear that although the decrease in transportation costs was important, its overall significance should not be overstated. El Salvador did benefit from lower freight rates and more regular shipping services, but the changes took place at the margin. It seems that their most significant effect was not in expanding the national income but in altering its structure. Lower

transportation costs made export activities more attractive relative to other productive activities such as handicrafts and food production. A trend that began timidly during the late colonial period, the expansion of the export sector, was greatly reinforced. It was irreversible.

Moreover, the change in trade routes was not completed overnight. Since the Panama Railroad was a monopoly with a very inelastic supply, it was able to operate at capacity charging very high rates. This means that it left an unsatisfied demand and that the rates were high enough for the other routes to be able to operate. The Izabal route, which had serious problems because of the long stretches of land transportation involved, was still very much alive in 1864 when indigo was exported "in great amounts by the port of Izabal in the Republic of Guatemala."^[23] It is remarkable that the new Panama route did not displace an alternative that involved traveling over roads that were unsafe, uncomfortable, expensive, and slow. The Cape Horn route was not abandoned either. It was able to compete with lower prices until the opening of the Panama Canal.

The increase in trade opened up opportunities to commercial and financial intermediaries, and a few British and American firms opened branches in El Salvador to take advantage of them. The extent of their influence on the economy is not well known today. One of their roles was to provide information about changes in the international market of the products exported by the country. The British firm Kerferd Sinclair and Company published a column in La Gaceta in which it gave the London prices of the main commodities. It also offered its services as credit intermediary in foreign operations and bought indigo, coffee, sugar, and cotton.^[24] The firm Guillermo A. Knoepfel of New York offered a great variety of services; an advertisement said that the company,

will attend promptly and efficiently every order received, be it for stationery, printing, wallpaper ... buy or hire ships, collect dividends, wills, debts ...^[25]

The other side of international trade, imports, is harder to analyze. Official data on imports is less reliable than the data on exports since the former paid taxes while export products paid rather minimal duties.^[26] Moreover, official trade figures give the impression that the balance of trade was always positive, something that is contradicted by the presence of outflows of specie in certain years. Imports (as well as exports) were valued at official prices that had nothing to do with market prices, and that remained the same over time. This has the advantage that the series reflect only changes in quantities and not in prices, but it says nothing about the balance of payments. It is important to keep in mind

that since imports paid high taxes, there was a strong incentive to hide imports or to make "special arrangements" with customs officials who were not always above corrupt practices.

Nonetheless, there are certain trends that are clear from the data.^[27] The most important category of imports was, by far, textiles. During the second half of the century they accounted for shares of total exports between 53.17 percent in 1877 and 33 percent in 1889. The share of capital goods, by contrast, never reached 3 percent. Luxury goods, widely defined as nonessential consumer goods, varied between 12 and 31 percent, the higher figures belonging to the end of the century. Although it would be hard to say that the members of the Salvadoran elite indulged in extravagant displays of conspicuous consumption (their luxuries being rather modest by the standards of the Porfirian elite in Mexico, for example), it is also hard to find anything in the products imported that could contribute to the long-term development of the country. Even more, the high imports of textiles made it impossible to develop a local textile industry even though the country had the capacity to produce cotton.^[28]

International trade had already become an economic activity linked to all aspects of the Salvadoran economy. The dependence on the Guatemalan merchants that had prevailed at the beginning of the century disappeared. Before the development of the new trade routes, the use of the Guatemalan ports of the Atlantic was a necessity, but by the 1860s their use was a matter of choice. The indigo fairs became commercial events where exporters and importers, important businessmen, and local producers and traders met. As the economy began to grow, the links between the national and international economy became stronger. The new emphasis on coffee production was to become the key link to the international economy.

Export Agriculture

When attention shifted from wars and politics to the routines of daily work, the economy showed a great degree of adaptability in taking advantage of the opportunities of the world market, or in minimizing the adverse effects of drops in the international prices of the main export commodities. This was possible due to the greater access of information and improved transportation after the opening of the Panama railroad. Most importantly, as the previous section emphasizes, the change in transportation costs made export production more attractive relative to production for local consumption.

La Gaceta published articles describing the cultivation of different

crops suitable to tropical climates. The virtues of vanilla and cotton were exalted, and coffee was hailed as the crop of the future. Indigo prices had been bad during the 1840s, and the crop had suffered badly from civil unrest and locust plagues. In the 1830s the average price of indigo in the London market was 6s . 8d ., and in the 1840s it had fallen to 4s . 3d .^[29] The situation improved in the following three decades, but the unreliability of indigo had been proven; it was necessary to search for alternatives.

The Cotton Boom

Efforts to export agricultural products were bound to fail until the proper economic conditions were met; more than a vision was necessary for exports to make sense. In 1874 a man named Wilson Jeffreys obtained an exclusive concession to export sugar, maize, beans, rice, and cotton, all free of duty, but as the markets were not there the venture never got off the ground.^[30] Eventually, the concession was withdrawn. In 1849 William Hoit was given a concession to process cotton, but the venture failed.^[31] Without clear market incentives, tax breaks and careful explanations of the cultivation of coffee and cotton were not enough to stimulate the production of these crops on a large scale.

Nonetheless, when the economic stimulus was powerful enough, the economy was quick to respond, as the cotton boom of the 1860s proved. Early experiments with cotton production did not lead anywhere.^[32] In 1858, despite government efforts, the production of cotton was negligible; only Usulután province produced some.^[33] The British had also made efforts to encourage cotton production to supply their textile industry: Manchester industrialists sent ten quintales of cotton seed to make them available to potential producers in El Salvador, and the British consul distributed brochures describing the methods of cultivating the fiber. He also set up machines to process cotton in San Miguel, San Salvador, and Sonsonate.^[34] But that was not enough incentive to abandon indigo and produce cotton on a large scale. E. G. Squier, the former American envoy turned Central American expert, wondered why in a country "in which cotton is not only indigenous, but where it may be produced in its highest perfection and at a minimum of cost, whether of labor or capital," cotton had not become "one of the standard exports." He had a good answer:

[I]t has hitherto been impossible to reach the markets of Europe and the United States, except by the long and expensive route around Cape Horn. And even now the exorbitant freight charges imposed by the Panama Railroad render it impossible to transport so bulky an article across the Isthmus with profit.^[35]

Mr. Squier's interpretation was very sound but became irrelevant when, during the American Civil War, cotton prices soared. Between 1851 and 1859 the average price of cotton in the London market was 58s . 6d. per cwt.; in 1861 it increased to 72s. 5d. , the following year it almost doubled to 141s ., and in 1864 it reached a peak of 255s.^[36] At the same time, the scarcity of cotton had depressed the demand for indigo; since there was less cotton to weave there was less need for dyes, and indigo prices went down. This combination of factors was enough to overcome all obstacles to cotton production, and Salvadoran producers were ready to adapt to the new incentives. Suddenly cotton cultivation became the most attractive venture. Sharing the enthusiasm of the natives, a French traveler thought that "among all the products of the soil cotton is the one that has the most promising future."^[37] Local newspapers were optimistic and carried articles on how to produce cotton, its historical origins, and the relationship between its prices and the American Civil War. This time everybody was paying attention to the message.

Some people abandoned their activities in San Salvador in order to produce the fiber. An advertisment that appeared in El Constitucional illustrates the enthusiasm of the people:

The undersigned has left today to settle in the vicinity of San Silvestre Armenia in the locality known as "La Puerta," where he has a plot of land of no less than 400 tareas to cultivate cotton; if anybody wants to join in the venture he can go to the place mentioned above.^[38]

At the end of 1863 cotton was exported for the first time, and there were reports that 100,000 acres would be sown in 1864. Initially, as the country lacked gins and presses, cotton had to be sent to Nicaragua for processing.^[39] Pretty soon all the necessary implements to process cotton for export were made available by English companies who brought seed and gins.^[40] The interest in cotton cultivation reached every corner of El Salvador. The governor of La Paz province reported that all the farmers in that region were doing their best within their means to produce cotton. Some, like the governor of Sonsonate, worried that the energies devoted to cotton could affect negatively the plantations of coffee and sugar cane. The governor of Santa Ana was cheerful about the prospects of the crop in his province. His colleagues in Chalatenango and San Vincente shared his optimism. The governor of San Salvador worried that a plague of worms could damage the cotton fields in his province.^[41]El Faro published production estimates divided by region (see table 18). Even though the figures are no more than educated guesses, they give an idea of the regional distribution of cotton production. It is not sur-

prising to see that San Miguel province, a key indigo producer, was most interested in cotton. Optimism was high. In October of 1864 El Constitucional estimated that the sales of cotton for that year would amount to 500,000 pesos. By November expectations had doubled, and El Faro estimated that the following year the crop would be worth up to 1 million pesos, more than enough to compensate for the losses in indigo exports.^[42] Official figures, however, show a far more moderate picture. Exports in 1864 amounted to 123,672 pesos and in 1865 were up to 183,719 pesos (5.36 and 7.96 percent of total exports). Cotton figures from different sources, however, are so inconsistent that the only thing that can be said is that they were not insignificant and that the authorities were very excited about the prospects.^[43] The decline of the cotton crop began in 1866, and there is no evidence that it was produced in 1868. When prices declined, El Salvador could not compete with other countries due to "the great expense of cleaning, packing and exporting it."^[44] Moreover, the ecological conditions of Salvadoran coastal areas made cultivation difficult. When cotton was produced in large scale it attracted numerous insects that damaged the crop.^[45] It was necessary to wait until the development of effective insecticides in the twentieth century to resume large-scale cotton production. The balance of the American Civil War seems to have been negative; cotton exports compensated for some of the losses in the indigo market, but total exports did not reach their prewar levels until 1867.

The cotton boom was neither thunderous nor lasting, but it highlighted the transformations that the Salvadoran economy had suffered by the middle of the nineteenth century. Changes in transportation costs had opened the economy to the rest of the world, and a distant war had affected the daily lives of many Salvadorans. In a couple of years it was possible to reallocate resources significantly in response to changes in

world prices. Given the right stimulus, such factors as the sluggishness of the capital market, the problems of "know-how," and the scarcity of labor could be overcome in little time. This will be an important conclusion to bear in mind when interpreting the second, and more lasting, change in the structure of agricultural production that took place in the nineteenth century: the shift from indigo to coffee production.

Indigo

The years of instability of the federation and beyond had done great damage to the country's only significant export product. Low prices in the London market, wars with Nicaragua and Honduras, four coups d'etat, one Indian rebellion, and five British blockades did nothing to promote production during the 1840s. It was a bleak situation. All foreign travelers mention the visible destruction; one of them thought that "improvements cannot be expected till a new race of people inhabit Central America."^[46] His analysis left something to be desired, but it was clear that years of unrest had left great destruction. The timing of its labor requirements made indigo production particularly vulnerable to wars and civil strife. The American envoy E. G. Squier had a clear perception of the problem:

The manufacture of the indigo requires no very difficult or expensive processes; but it must be cut promptly at the proper period, or else it becomes worthless. It is then necessary for the proprietors of estates to have a large and reliable source of labor. The difficulty of obtaining these at such times during political disturbances when laborers seclude themselves as much as possible to escape conscription, has been one of the principal causes of the falling off of the production of this commodity.^[47]

Indigo had to be cut when buds were about to open, at which time the concentration of indigo in its leaves was highest. The yield decreased sharply when wars interfered with the availability of labor and the crop was collected late. Production increased somewhat at the beginning of the 1850s, but the recovery was interrupted when in 1854 the crop was affected by a locust plague at the same time that an earthquake destroyed the city of San Salvador (see tables 19 and 20).^[48] The damage inflicted by both natural phenomena was extensive. Labor was needed for the reconstruction effort, to fight the locusts, and to carry out the normal economic activities. It was an impossible task, half of the crop was destroyed by locusts, and food production also suffered; hunger was widespread.^[49]

The recovery was difficult. After William Walker invaded Nicaragua in 1855 President Campo sent Salvadoran troops to help in the effort

against the "filibuster." The war disrupted trade with Central America and with the rest of the world, and the soldiers who returned from Nicaragua brought with them an epidemic of cholera morbus that weakened the labor force.^[50] By 1861, after a couple of years of relative stability under the strong leadership of General Gerardo Barrios and with high prices in the London market, the recovery was complete. That year the crop was 50 percent higher than in 1849. In 1862 it was even better, surpassing the mark of 2 million pounds, a record crop for the new country. The recovery had been slow and year-to-year fluctuations were great, but many felt that the potential of indigo as an export crop had not been exhausted. It was a short recovery; old enemies had not been forgotten, and in 1863 the country was again at war, this time with Guatemala. Production records were not kept because of the war, but it was estimated that indigo exports decreased substantially.^[51] In fact, 1864 exports were almost half of what they had been in 1862. Moreover, by that time the American Civil War had already depressed prices. The

recovery was slow because the cotton boom used up money, land, tools, and labor which otherwise would have been employed in the production of indigo, and, because more importantly, prices were low. The Civil War eventually ended, and in 1868 indigo production was back to its 1862 levels and grew steadily to an all-time record in 1872. It was a trend too good to last, however: in 1873 a drought cut production in half while prices in the London market dropped.^[52] Another war with Guatemala in 1876 made matters worse.

The international price of indigo had been rising slowly from the late 1840s until 1868, but from then on the trend was negative.^[53] The invention of the first artificial dyes in the 1850s condemned indigo to a slow death. Salvadoran producers missed most of the good years due to wars and earthquakes, but whenever a modicum of stability was achieved, production did increase. Although the high levels of 1872 were never seen again, indigo production fluctuated between 1 and 2 million pounds. With the economic crisis of 1896 and the invention of a close artificial substitute of indigo a rapid decline began. By the end of the century indigo had ceased to be the engine of the economy since its prices had decreased much faster than the amount produced and coffee exports were far more important.

Although political instability and natural disasters greatly affected indigo production, Salvadoran producers were no fatalists. They were acutely aware of the fluctuations of the market and, when possible, were eager to take advantage of them. La Gaceta published a monthly column with information on prices and the general movement of the market in London. It also carried articles on the size of the crop in India and on the prospects of production in the different regions of El Salvador. The governor of San Vicente province described one of the fairs with comments worthy of a contemporary commodities analyst:

[T]here was as much indigo as we had announced and more than the majority of the interested parties believed, for that reason the first indigo that arrived to the market sold at good prices, but when the rest arrived, the price diminished accordingly.^[54]

Producers began worrying about finding ways of improving cultivation and the quality of the processing. Gerardo Barrios, liberal leader, indigo producer, and later president of the Republic, published an article in 1856 giving advice on the best method to process indigo.^[55] In 1858 Doroteo Vasconcelos, indigo producer and former president, wrote to La Gaceta to announce a procedure that he had invented to process indigo more efficiently.^[56] Notwithstanding the advice that such prominent figures shared so selflessly with their compatriots, in 1860 La Gaceta complained that:

In the production of indigo, which up until now is the source of our wealth, we have not abandoned the routine dictated by tradition, we have not taken any steps to improve it, not because it is unnecessary; indigo is made in India cheaper and cleaner, which should have encouraged us to put ours at the same level.

Not knowing the means to substitute manpower nor doing anything about it, we are right to complain about the lack of labor, considering it as an insurmountable obstacle for any enterprise of some magnitude.^[57]

The writer argued that the lack of manpower was no excuse, because an increase in knowledge and the use of machinery could solve the problem. But the optimism of the technology-oriented positivist thinkers of the time was not enough to overcome a new reality: there was another crop that was more profitable. By 1860 it was becoming clear that coffee was a better activity toward which to allocate one's scarce captial. Salvadoran producers were not inherently resistant to innovation or to the use of machinery; they proved it when they produced cotton on a large scale, and when they learned the complexities of coffee production. But they were keenly aware of the constraints of the economy and of the alternatives available to them.

Coffee

El Salvador had produced coffee since colonial times, but never enough even for the local market. Antonio Coelho, the Brazilian who was hired to demonstrate the Lancasterian teaching method in the 1830s, is credited with introducing modern coffee cultivation techniques.^[58] The possibility of exporting this product was not considered until the late 1840s. In 1848 La Gaceta was optimistic about the prospects: "Soon we will be able to export this fruit since there is already a surplus."^[59] In the 1840s coffee production was becoming attractive because indigo prices were at an all-time low. The average price of indigo for the decade was the lowest in the century, and the price in 1848 was the worst of the decade.^[60] Not surprisingly, local producers were anxious to find crops that could replace indigo. There was an example to follow, Costa Rica, a country unsuited for the production of indigo or cochineal, had started producing coffee at the beginning of the independent period, and its accomplishments were already visible. The very first issues of La Gaceta devoted considerable space to articles on the cultivation of coffee and its success in Costa Rica.^[61]

But indigo prices improved during the following decades and, although interest in coffee remained very much alive, indigo was still a viable export. Coffee production grew slowly; the hope of having

enough coffee to export was expressed often by La Gaceta , and exports began at the end of 1855. The government consistently encouraged coffee production. The first legislative decree to promote coffee production, issued in 1847, addressed some of the basic problems raised by political instability: the labor demands of warfare and public service. According to the decree all those who had more than 15,000 coffee trees in production would enjoy a ten-year exemption from the duty of serving as concejales (members of the town council), and their workers would be exempt from military service for the same period; the horses, mules, oxen, and tools used in coffee cultivation would not be sequestered "for public service"; coffee would be tax exempt for seven years; and imports financed with coffee revenues would have a 4-percent reduction in import taxes.^[62] The concessions were not negligible, but they did not address the equally serious problems of shortage of capital, lack of agricultural knowledge, and high transportation costs. By 1857, when coffee exports were already becoming a reality, incentives were increased. For the first time public lands became a policy instrument to encourage production. When the city of Nueva San Salvador was founded after the 1854 earthquake, from six to twenty manzanas of public lands were granted to those who were willing to devote two-thirds of them to coffee cultivation.^[63]

Coffee production presented serious problems. In a country that had for years engaged in traditional agriculture, the introduction of a new crop involving rather complex cultivation techniques was a great challenge. Introducing a new agricultural technology was only part of the problem. Coffee was a perennial that did not produce before three or four years, meaning that producers had also to learn new ways of financing their crop. Engaging in coffee production meant a completely new way of doing things, a new way open only to those who could master it.

First, we will discuss the difficulties involved in financing a plantation. Aspiring coffee planters had to be ready to cover great expenses to plant the trees and then had to have other sources of income to sustain themselves until the operation became profitable. In a country where capital was very scarce and, therefore, interest rates high, where there were no credit institutions, and where memories of the effects of political instability were still vivid, investment in long-term projects was difficult. "[Coffee's] general cultivation" observed von Scherzer "has been prevented by want of confidence in the future." Given the prevailing political uncertainty, no one wanted to have his scarce capital "locked up for three years."^[64] Years of war had not only shaken people's confidence but also used up their funds. The governor of San Vicente thought that his province was not producing more coffee because of "the difficulty of exporting and the lack of funds on the part of the land-

owners who in the past, instead of being protected, were deprived of their property."^[65] There were cries for the creation of a bank for coffee planters along the lines of the Montepío de cosecheros de añil.^[66] This is a good place to remember the contrast with Costa Rica where a more stable environment permitted a much earlier development of credit institutions and, therefore, where coffee cultivation began earlier.

Despite the numerous difficulties, the rewards for engaging in the adventure were considered to be high. In 1857 Consul Foote figured that under adequate conditions, an initial investment of 500,000 pesos could produce net profits of 835,000 pesos after five years.^[67] The consul's estimates may have been optimistic; he estimated interest rates at 5 percent when he himself had reported one year earlier that the real interest rate in commercial transactions was at least 20 percent.^[68] Moreover, his calculations did not take into account another aspect of the cost of credit at the time: the possibility of yet another war with a neighboring country with its destruction, forced loans, and demands for men, a very plausible consideration for Salvadoran producers. His estimates merely show how coffee was beginning to look like a very promising crop. It was not a groundless perception. Some coffee was already cultivated with success and market tests were encouraging. Samples of Salvadoran coffee were sent to Europe where they obtained good prices.^[69]

The growth of coffee production, however, was bound to be slow. Besides the problems of financing the intial investment, coffee planters had to learn new and complex methods of cultivation and processing.^[70] Seeds were planted in May in a nursery, and the delicate seedlings could not be transplanted until the following May. Then, an appropriate setting had to be found for the plantation: coffee grows between 2,500 and 5,000 feet above sea level. Once in its permanent setting the trees had to be nurtured for at least three more years before they yielded a good crop. Coffee trees needed protection from wind and sun, which meant planting large trees to shelter them. After the plantation began to bear fruit it was necessary to clean the ground from five to six times every year. Organic fertilizers were used to increase the yield. When the crop was ready, coffee berries had to be picked by hand. Pickers had to be trained to work rapidly and thoroughly; inexperienced pickers could damage the branches of the trees or drop the berries on the ground. At the end of the day the pickers took the berries to a beneficio , a plant where the berries were processed. In the beneficio the pulp was separated from the beans, which were then spread on a brick courtyard to dry under the sun (coffee is picked at the end of the year during the dry season). The last stage was to clean the dry beans, classify them, and put them in bags. In March and April the harvest was ready for export.

The complexity of the process required substantial financing, the

organization of a large labor force, the coordination of different stages of production, and dealing with the problems of transportation and marketing. Coffee production was a difficult and expensive skill to acquire, and planters had to learn by trial and error. In the early years they made the mistake of not protecting the trees against the sun. At the time it seemed the reasonable thing to do since unprotected trees bore larger crops, up to four pounds per tree; but this practice so debilitated the trees that it took three to four years for them to recuperate their strength. Trees under shade produced a smaller but steadier crop, an average of one pound per year, and insured a longer life to the shrub. By 1885 the practice of cultivating the coffee under shade was being adopted universally by the planters.^[71] Undoubtedly, coffee cultivation required far more complicated managerial skills than indigo. As the cultivation of coffee became more generalized, a division of labor developed and the risks of production were spread among different economic units. By the end of the century there were: nurseries that sold young trees ready for transplantation; large beneficios that processed berries produced by smaller plantations; and coffee exporters with connections in Europe and the United States who took care of marketing and shipment. It became a multidimensional business on which everybody's fate depended.

From Indigo to Coffee

The transition from indigo to coffee was gradual: indigo production remained over a million pounds until the end of the century, even though prices were falling. The introduction of artificial dyes was slow. Up until 1860 the textile industry had little use for artificial dyes. The first aniline, mauveine, was not discovered until 1856. Other anilines were introduced throughout the century, but none of them was a close substitute for indigo; synthetic indigo was not introduced until 1897.^[72] By then coffee was already the main export product of El Salvador. Total coffee exports were growing but not necessarily at the expense of indigo production; much of its was net growth. Coffee production was growing faster than the population whereas indigo declined very slowly. Part of the growth was possible thanks to the introduction of new land into cultivation. The government's active sale of terrenos baldíos and the fact that land prices remained fairly stable support this hypothesis. Moreover, change in transportation costs made production for exports more attractive; resources previously used in food production and other activities were diverted. Still, if more resources were to be devoted to exports, a choice had to be made between coffee and indigo, the only viable exports.

The incentives for shifting from one product to the other were varied.

At the beginning of the process, prices were not the main incentive; between 1848 and 1869 the ratio of coffee to indigo prices in the London market was decreasing. Transportation costs, by contrast, offer a more attractive explanation since they experienced a sharp decline after the opening of the Panama Railroad in 1855. Transportation costs had a greater impact on the profits of coffee since it had a smaller value per unit of volume. A simple calculation can show how this worked. If coffee had been exported via Izabal in 1853, transportation costs would have accounted for 24 percent of its price in London. In 1864, when the Panama route was in full service, transportation costs accounted for 14 percent of its price. That 10-percent difference, together with the savings in interest derived from a shorter trip, undoubtedly made the crop more attractive. A similar calculation for indigo, however, shows that, with the new trade routes, transportation costs for that product decreased from 6.9 to 3.2 percent of its London price.^[73] In the margin, coffee benefited more from the new transportation situation.

Another important consideration for producers had to do with the high risks involved in indigo cultivation. They advanced this as one of the main arguments for cultivating coffee:

The main export crop of El Salvador [indigo] and the most important branch of its industry, has the inconvenience of being an unstable crop and those who devote themselves to it would earn much more money cultivating coffee, sugar and cocoa.^[74]

In 1878 the governor of San Vicente province made the same point saying that indigo was subject to more variables than any other product. Among the culprits, he mentioned both the overabundance and the scarcity of water, the lack of labor, "so frequent when a revolution takes place," and breakdowns in the obrajes as some of the "eventualities."^[75] Even more important was the constant threat of locusts, which had destroyed many crops in the past. Coffee, in contrast, was less sensitive to those problems. In fact, a simple look at coffee export figures shows a much steadier performance than indigo during the second half of the century.

Coffee did not become the main export overnight. Some of the reasons for this slow growth have been suggested above: resources were scarce and there was a limit to what the economy could accomplish. The shift to coffee production has to be viewed in the context of the alternatives available to the local producer. At appropriately outrageous interest rates it would have been possible to find capital to cover the country with coffee trees, but in order to do that all other activities would have had to come to a halt. Coffee was attractive up to a point, but there were other economic activities, such as indigo, food production, and

commerce, that were also profitable. The entrepreneur, then, had to decide between a range of possibilities. When there was a product with a clear advantage, there were businessmen ready to seize the opportunity, as was the case with cotton in the 1860s.

The shift from indigo to coffee brought important changes to the economy. First, the economic geography of the country changed, the center of gravity moving from east to west. The eastern provinces of San Miguel and San Vicente produced almost 60 percent of all the indigo exported in 1858.^[76] The western and central provinces, in comparison, were best suited for the cultivation of coffee. The Lorenzo López census of 1858, which includes only the western provinces, shows that the efforts to cultivate the new crop were general throughout the region. In 1857 Santa Ana province had 439,980 trees in production and 1,400,630 planted but not ready yet to produce.^[77] Ahuachapán had 300,000 trees in production and 600,000 in nursery. Sonsonate had 67,865 trees already in production. Rich and poor, "both the landowner and the proletarian," were trying to produce coffee.^[78]

The increased importance of coffee over indigo was bound to affect the relative importance of ports. Most of the activity moved from the eastern port of La Unión to La Libertad and Acajutla, which were closer to the coffee plantations. About half of the indigo exports and very little coffee were exported from La Unión. In 1857, 52.6 percent of exports were shipped at that port; the percentage declined to 38.6 in 1871 and to 6.06 in 1893.^[79] The shift was permanent. A related development took place in the last two decades of the century: the privatization of ejidos and communal lands, in particular those located in the western provinces. Because this phenomenon is quite complex, chapter 5 will be devoted entirely to a discussion of its implications.

The shift from indigo to coffee had far-reaching social implications. Coffee cultivation was a complex task that demanded great skills, access to a considerable amount of credit, and willingness to take risks in an environment where there were no legislation or market mechanisms to minimize risk. When coffee cultivation began people from all walks of life tried their luck; at the end of the century a coffee elite had been formed. A sort of economic Darwinism emerged. Given a situation where the scarcest factors of production were capital, entrepreneurial talent, and land, every aspect of the coffee economy contributed to increase inequality. In a very imperfect credit market access to credit was extremely difficult unless one was already rich, had excellent connections, was very talented or, better, all of the above. Obtaining credit was just the first step. It was clear that those who had the early advantage of access to credit were in a good position, but even they had to be very able in order to survive for four years while the coffee tree matured, to

learn the complexities of cultivation and processing, and to tackle the problems of marketing. After all, even the rich had rather modest means and training. One of the very few ways of somewhat diminishing the risks involved in coffee cultivation was by gathering as much information as possible on cultivation methods and the markets; again, the ability to acquire and process information was open to very few. In short, true entrepreneurs were needed, and the pool from which those entrepreneurs could conceivably emerge was exceedingly small.

Although entrepreneurial talent is rewarded in almost every economy, the new economic environment in El Salvador had made it far more important than in the past, and the possible rewards were higher than ever. There was little collective experience in dealings with the outside world. During the first half of the century indigo exports had been quite limited, and only a few had developed the skills necessary to do business with the outside. Exchanging indigo for foreign goods once a year at the San Miguel fair was not good enough. Most planters had to learn the complexities of production and marketing through trial and error while a tight credit situation made errors very costly. The accomplishments of the early coffee planters cannot be dismissed; they were true pioneers. However, the economy rewarded lavishly the very able and punished all others. Eventually, as few alternatives to coffee production were left, the early winners were able to keep their advantage well into the twentieth century. As coffee exports gained in importance coffee planters became the coffee elite. An interesting economic event gave way to a radical change in Salvadoran society.

Conclusion

None of the changes experienced by the Salvadoran economy during the second half of the century took place overnight. Events of great significance, like the opening of the Panama Railroad, gave clues to the economy, but the lack of resources slowed down growth. The importance of the opening of the Panama Railroad epitomizes two changes in the world economy that greatly affected El Salvador, but which were completely outside the sphere of influence of any Salvadoran individual or institution: (1) the transportation revolution and (2) the explosion of trade activity along the coast of the Pacific ocean. Conceivably this is a metaphor for one of the main characteristics of the modern Salvadoran economy, its helpless openness. When economists talk about the small-country hypothesis, countries unable to achieve any impact on international prices, the example of El Salvador comes to mind.

The incorporation of California to the territory of the United States

(to use a neutral description of the events), the Gold Rush, the increased trade of Chile and Peru, the opening of the Panama railroad, and the generalized use of steamboats in transcontinental navigation, all encouraged a competitive environment in the shipping industry which gave new signals to the Salvadoran economy. Although changes in transportation costs did not by themselves bring great growth, they made exports more profitable and helped to reorient the economy toward export activities that favored only a few.

When the American Civil War disrupted the activities of the textile industry El Salvador received a powerful lesson on the implications of a more open economy. Indigo prices went down, and it was necessary to learn how to produce cotton to compensate for some of the losses. This was only a temporary adjustment, however. A more permanent change in the Salvadoran economy was the shift from indigo to coffee. Again, changes in the shipping industry played an important role since they benefited coffee profits more than indigo profits. There was a strong incentive to increase exports, and within the exportables coffee received the strongest incentive.

There is no question about the importance of changes in the international markets, but this does not mean that the economic history of El Salvador is reduced to the study of those changes. The country had very specific characteristics that shaped its responses. First of all, it was a country where traditional agriculture had predominated for centuries and where few had the education necessary to function under the ever-changing environment of a very open economy demanding the learning of new agricultural technologies. Second, a government of indigo planters was delighted with the opportunity of expanding exports and did what it could to reinforce the trends. It subsidized the steamers of the Panama Railroad Company and improved the ports and the roads leading to them, encouraged coffee production, and rewarded it with land. Per-capita exports rose throughout the period but never reached the levels observed in other countries of Latin America. In 1880 Argentina, Uruguay, and Cuba, the most export-oriented countries in the region, "matched or exceeded the seventeen-dollar per-capita exports of the United States that year."^[80] El Salvador's per-capita exports that same year were around seven dollars. Even if the figure was relatively small, exports were the main source of income for a ruling elite that was eager for new sources of income.

Coffee cultivation had specific demands that rewarded capital (both human and physical) and entreprenurial talent; its triumph was also the triumph of the elite, the only group in Salvadoran society with the key to both factors of production. As long as other groups had access to land they could defend themselves; they had more bargaining power in the

labor market and could produce their own food. But the demands of the export crops soon put pressure on the land market. The country was very small, and the government ran out of terrenos baldíos to distribute. Moreover, coffee cultivation had very specific ecological needs that limited the amount of land that could be devoted to it and determined its geographical location. In the past, capital and entreprenurial talent had been the scarcest factors of production and they were duly remunerated; in the 1870s land, mainly land suited for coffee production, was becoming scarce. The pressures of the international market had introduced a new element in the economic picture and the country reacted accordingly: ejidos and communal lands were privatized. It was a political reaction to an economic stimulus. The early expansion of coffee went together with a strengthening of the coercive apparatus of the state, which gave the elite a greater flexibility to act. Instead of remunerating a scarce factor of production, the ruling elite chose to change the rules of the game.

6
The Privatization of Land

As suggested in the last chapter, the switch from indigo to coffee production was a response to changing conditions in the international market. Indeed, artificial dyes began appearing on the market in 1856, and uncertainty existed about the future of indigo; international markets expanded thanks to lower transportation costs and to the rapid internal growth in the European economies, and the Salvadoran economy rapidly adapted to the new situation. This explanation gives the impression that the decision to switch from indigo to coffee was based exclusively on economic grounds, and that it was efficient to change the structure of agricultural production. In the long run, this is a sensible interpretation. In the short run, however, the increase in coffee production cannot be separated from a political and economic decision of great importance: the privatization of ejidos and communal lands. This event is known in Salvadoran history as the liberal reforms.

Current Interpretations of the Problem

The understanding of this problem is central to every interpretation of the economic history of El Salvador. Torres Rivas thinks that the liberal reforms facilitated "more than in any other region of Central America the concentration of land ownership."^[1] This remains the prevalent view, although it has been qualified by others. For David Alejandro Luna, large properties were strengthened by the agrarian policies of the

nineteenth century in general, but the specific consequence of the liberal reforms was the appearance of "anti-economic small landholdings," a feature of the Salvadoran countryside ever since.^[2] The main interpretation of the liberal reforms has been articulated by David Browning in a pioneering book on changes in Salvadoran landscape and society.^[3]

As Browning's interpretation is by far the most elaborate, it is convenient to analyze it in detail. He discusses with great insight the enormous gap in the concepts of land use and land property used by the white elite and by the Indian communities. According to Browning, the Salvadoran elite perceived two obstacles to economic growth: excessive dependence on indigo production, and confusion with regards to land titles.^[4] Their solution to the problem illustrates their peculiar point of view—the problem of dependence on indigo was solved with a new dependence on coffee; the problem of land titles was solved by depriving the Indian communities of their land.

Browning suggests that the factor that moved the elite to desire changes in land tenure was the introduction of coffee. The Indian and ladino concepts of land use were incompatible, and the expansion of coffee made the confrontation unavoidable. "Above all else," says Browning, "it was the introduction of coffee that persuaded those in control of the nation's affairs to reform the use and ownership of the land of El Salvador."^[5] Ejidos and communal lands were thought to be an obstacle to the development of coffee production. Commercial agriculture was a difficult concept for Indians to understand: "In many [rural] communities," says Browning, "explanations about the value of certain crops in international markets have little meaning or importance." Thus, "it is not a matter of saying to a villager that he should be prepared to grow export crops alongside maize and beans."^[6] The problem became more complicated with the introduction of coffee, which was

... an alien plant of which the individual cultivator had little knowledge and to which he attached no importance, either cultural or economic. In addition a plant that required five years' growth before it gave fruit was not easy to accept into a cycle of cultivation that was attuned to the annual change of the seasons, and where because of economic necessity and the cultural heritage it was assumed that each year brought rain, growth and food.^[7]

Indians thought that land had to be used to produce subsistence crops, whereas big landowners gave priority to commercial crops that, it can be inferred, were more profitable. Following this line of reasoning, it can be concluded that for the agricultural sector to grow it was necessary to eliminate traditional forms of landholding. Those who cultivated

ejidos and communal land had such a narrow concept of the role of land that they could not take advantage of the better prices of cash crops.

This concept presents a problem since indigo, a commercial crop, had prospered since colonial times when communal and ejido lands were of great importance. But indigo, according to Browning, was different since

... the slow expansion of indigo production developed alongside indigenous subsistence farming and, though competition between the two for land did exist, both systems were given time to adjust to the requirements of the other within a legislative framework that was designed to preserve both new and indigenous structures.^[8]

The pace of expansion permitted an adaptation without conflicts. That was not the case with coffee. Moreover, Browning asserts that the elite changed its attitude toward land. This change was due to the different production methods and economic organization involved in coffee cultivation. He found the following differences:

- The crops were introduced in different ways. Indigo was introduced slowly whereas coffee expanded rapidly.

- The methods of cultivation of both crops were different.

- Both crops had different labor requirements. Coffee needed more year-round labor.

- The geographical location of both crops was different because of the narrower ecological conditions under which coffee can be cultivated with profit.^[9]

Browning completes his interpretation by saying that the rapid development of transportation facilities contributed to the rapid growth of coffee production. The main reason for the national elite to promote the reform of land ownership was the desire to increase the production of coffee. There were substantial differences in the cultivation of coffee and indigo that demanded a different attitude toward land. Unfortunately, communal and ejido lands were in the hands of people who were interested only in subsistence crops. The economic project of the national elite was incompatible with traditional forms of landholding.

In fact, there is much to learn from this interpretation, and the main lines of the story seem to confirm it. As far back as the period between 1859 and 1863 Gerardo Barrios transferred public land to the private sector with the sole condition that it should be used to produce coffee. As described above, the process culminated in the abolition of commu-

nal and ejido lands with decrees issued in 1881 and 1882. The prologue of the 1881 law stated that,

The land owned by communities impedes agricultural development, is an obstacle to the circulation of wealth, and weakens family ties and the independence of the individual. Its existence is against the economic and social principles adopted by the Republic.^[10]

A specific sector of Salvadoran society thus identified its group interests with those of the country.

The most recent interpretation of the liberal reform is Rafael Menjívar's. He also gives great importance to the introduction of coffee, but he approaches the problem from a Marxist perspective. His main concern is not why the reforms took place but what the role of the reforms was in the development of capitalism in El Salvador. To him the liberal reforms played a key role in the process of capital accumulation. According to his interpretation ejidos and communal lands "would be the lands that, under the process of originary accumulation, would become the constant part of capital."^[11] The beauty of the process was that at the same time that the elite appropriated land, labor was freed to work in the coffee plantations. Key to his interpretation is the amount of land involved. Undoubtedly the more land changed hands, the stronger the argument become. He estimates that 40 percent of the territory of the country was directly affected by the reforms.

As this sketchy review of the literature suggests, there are four questions worth exploring in order to understand the implications of the liberal reforms. First, what was the amount of land involved? Second, what was the political climate that made them possible? Third, what was the role of the introduction of coffee? And finally, how did the reforms alter the distribution of land?

The Importance of Ejidos and Communal Lands

As the authorities confirmed with a land-tenure survey carried out in 1879, what was at stake was a good portion of the territory. Although the survey was incomplete (it provided no information for three rich provinces, Ahuachapán, San Miguel, and La Paz, and its accuracy was affected by the great confusion over land tenure that prevailed at the time), it had enough information to provide an idea of the order of magnitudes involved. The governors' reports on which the survey was based originally appeared in the Diario Oficial , and were summarized

by Rafael Menjívar in his book Acumulación originaria (see table 21).^[12] Menjívar's table compares the area of the ejidos to the total land area and to the arable land of each province. The data on arable land included in the table was taken from an agricultural census carried out in 1950; therefore, they are a high estimate of what was considered to be arable land in the 1870s. According to the figures, 12.9 percent of the total territory of the country and 17.7 percent of the arable land was ejido land (assuming that the three provinces that have not been accounted for followed a similar pattern). Of course, the last percentage is a low estimate because of the assumption made about arable land. Based on the same information, Browning asserts that "well over a quarter of the country ... was considered by the villages to be their own domain."^[13] Menjívar believes that this estimate does not include communal lands and, after making some assumptions, reaches the conclusion that by 1879 "no less than 40 percent of the territory was covered by ejidos and communal land."^[14] Both writers have the same point of departure but arrive at substantially different estimates.

Menjívar's figure is a very high estimate. He starts with Browning's estimate of 25 percent but, based on the fact that there was great confusion as to what was an ejido and what was communal land, asserts that most communal lands were not included in the survey. He tries to arrive

at an estimate by assuming that the area covered by the communal lands can be obtained by subtracting ejido land, haciendas, and nonagricultural lands from the total area of the country. It is a reasonable assumption, much more reasonable than the actual selection of data to make the estimation. The area of the country's territory is not in question, and the area covered by ejido lands, although known to be imprecise, at least is based on a contemporary survey. The amount of land covered by haciendas presentes a trickier problem. Menjívar, following Browning, asserts that the extensions of the haciendas can be estimated from the report written in 1807 by the intendente Gutiérrez y Ulloa.^[15] This approach has two problems: the intendente's report does not have enough data to yield anything more than a general impression of the importance of haciendas, and land tenure had experienced important changes in seventy years. The economy had experienced transformations, the private land market had been very active, land transactions involving ejidos had taken place, and the government had sold terrenos baldíos. Even if an accurate estimate of the land covered by haciendas in 1807 was available it would be irrelevant to estimate hacienda land in the 1880s. By contrast, the area of nonagricultural lands is taken from the 1950 agricultural census. This presents another serious problem: new agricultural techniques and higher demographic pressure almost certainly made the area of 1950's nonagricultural land significantly smaller than 1879's. Menjívar does not account for this. A sample of land titles registered in the land registry of the western provinces suggests that by the 1880s common lands were a small percentage of the total. Only 3.74 percent of the land in the sample was common land. (The evidence is not conclusive since there were allegations that Indian communities were slow in privatizing their lands. Nonetheless, the western provinces were the area where Indian communities were strongest and more organized, and one would expect that they would have made a good effort to claim their lands.)^[16] Menjívar's estimate can be considered, at best, as a very high upper bound. Browning is more cautious because he believes that, as the distinction between ejidos and communal lands was always blurred, it is not certain whether the latter were included in the survey in any consistent fashion. His estimate of 25 percent of the territory is already almost twice the estimate found in the 1879 survey, making a very generous allowance for the undercounting of communal land.

It is not necessary to agree with Menjívar's exaggerated estimate to argue that the size of communal and ejido lands was far from negligible. Not all ejido and communal land was cultivated, and private land was not fully cultivated either, but there is ample evidence, both in the 1858 census and in the 1879 survey, of the importance of ejidos and commu-

nal lands in the production of foodstuffs and export crops. There is no question about the importance of these forms of land tenure in terms of their size and of their contribution to the Salvadoran economy. Moreover, ejidos and communal lands were closely identified with colonial institutions and with one significant group in Salvadoran society: the Indian population.

Political Context

The substantial amount of land involved suggests that the move to privatize all land cannot be seen as an exclusively economic decision. A large segment of the population was negatively affected by this decision, which, therefore, could not be taken without considering political realities. Ejidos and communal lands were not an obstacle to the expansion of coffee, and coffee, by itself, was not the main reason for the liberal reforms. Foreign demand for Salvadoran agricultural products had made land relatively scarce and more desirable. Under those circumstances a very small group that had been able to achieve control of the apparatus of the state did not shy away from using its power, moving to change land legislation to its advantage.

Changes in the balance of power between Indian communities and ladino landowners interested in producing for the international markets are crucial to understand the liberal reforms. They were two groups who had never seen eye to eye. Before independence, colonial institutions had mediated their conflicts, but, with Spanish authorities gone, conflict broke out regularly. The old tradition of endowing towns with ejidos and Indian villages with common land was threatened by the new and radical ideas of liberals inspired by Adam Smith. Two factors helped to keep the landowners away from ejidos and communal lands: the existence of abundant uncultivated land and the power of conservatives in neighboring Guatemala. Rafael Carrera, the Guatemalan conservative caudillo, had come to power after a rebellion provoked by liberal excesses and with the strong support of the Catholic church and the Indian communities. Moreover, he wanted like-minded governments in Central America and used force to get his wishes. During the first three quarters of the century the risks of confronting Indian communities were higher than the rewards. Indian rebellions were always supported or used by conservatives to advance their political goals. As long as Indian groups could obtain support in Guatemala, they represented a real threat. Indians had less to fear from conservatives, who wanted to protect their power base, than from liberals, who wanted to free every market (including land) from colonial restrictions. Moreover,

there was great confusion about the difference between ejidos and common lands.

Liberals, in particular, identified all the supposed evils of communally owned land with the alleged backwardness of the Indian population, even though many ladinos benefited from the ejidos. Interest in Indian lands had been explicit since the early years of the national period. Juan Manuel Rodríguez, one of the leaders of the independence movement in El Salvador, wrote in 1824:

Interior land is badly distributed, because Indians own most of it as common land and the so-called ladinos have none. The former do not enjoy true ownership, therefore they do not value their land, and they only impede its cultivation by others.^[17]

Rodríguez's message may have been too blunt. Other liberal leaders couched the same concepts with an appeal to loftier principles of equality:

In the old system class differences impeded the use of land, and in the so-called Indian towns, they [the Indians] decided how to use their land, cultivating part for neighbors of the same towns who did not belong to their class. The law of equality established by our current system must abolish every privilege since there is only one class of citizen, every one with the same options, it is very just to level all to the same rights and obligations.^[18]

There was a conflict, and it had clear ethnic connotations. In fact, both conservative and liberal leaders were wary of the Indian population. Needless to say, all positions of leadership were held by criollos or ladinos. When there was a danger of Indian revolt they put their differences aside. Anastasio Aquino's revolt in 1833 "had the salutary effect of causing all conflicting parties to unite against [the Indians]."^[19] But liberal policies were more likely than conservative ones to exacerbate Indian grievances.

In the unstable environment of the federal period, criollo and ladino landowners were far from being in full control. The Indian population sometimes used the new political avenues created by independence. In 1835 Tomás Espinosa, a man of Indian extraction, was elected chief of the state of San Salvador. When ladinos and criollos opposed his election, the Indian population fought to support him. Gral. Morazán, a liberal and president of the federation, sided with the opponents of Espinosa, who was out of power in less than a year.^[20] A few months later, in May 1837, an Indian rebellion

... rose upon the white and mulatto population murdering them and plundering their houses, under a supposition that the origin of the devastating cholera was attributable to poison thrown into the rivers and that even the medicines supplied to them were impregnated with deleterious substances.^[21]

A cholera epidemic had helped to trigger resentments against landowners. It was a disorganized affair that, unlike Carrera's similar rebellion in Guatemala, completely failed. However unsuccessful, these Indian uprisings reminded liberals like Juan Manuel Rodríguez that there were limits to their programs.

External pressures further helped to check the liberal program. After the breakup of the federation in 1839 the Guatemalan conservative leaders, first Carrera and then Cerna, were always available as allies to fight against liberal excesses in El Salvador. Liberals were in power from 1845 to 1851, but they had to be tactful in advancing their programs. Nonetheless, there were two Indian uprisings under their watch.^[22] When conservatives had a chance to rule, they, in turn, had to realize that the Salvadoran elite was, by and large, liberal.^[23] A good example of this was Francisco Dueñas, El Salvador's foremost conservative and the whipping boy of liberal historians who, thanks to the help of Carrera, replaced liberal Gerardo Barrios in 1863. Unseating Barrios took a fullfledged war between Guatemala and El Salvador, helped by Indian revolts against the liberal leader.^[24] Dueñnas's conservative instincts were reflected mainly in his respect for the Catholic church and for Indian institutions. He never attempted to role back the clock. He passed legislation giving representation to Indian communities but did not reinstate laws endowing towns with ejidos. He protected the church as a spiritual force but upheld an 1832 law declaring the capellanías property of the state.^[25] Many of his economic policies were a continuation of those of his arch-enemy Barrios: improvement of roads and ports, pro-fessionalization of the army, installation of telegraphs, sale of public lands, and the like. His main achievement was to provide a measure of much needed stability. Exports grew faster under Dueñas than under Barrios, and coffee took off during his period. Indians gave him their full support, and he did not touch their lands. When liberals tried to stage a revolt in San Miguel, Dueñas defended himself with troops recruited in Indian towns.^[26]

Things changed, however, and liberals came to power in Guatemala. One of Dueñas's main sources of support was gone; his government was toppled in 1871. Without him Indian revolts returned; their institutions were again under siege. The first revolt took place in 1872 when 400 Indians armed with machetes rose in Cojutepeque under the battle cry

"Dueñas and religion," but both Dueñas and the bishops were on the losing side.^[27] Indian unrest returned three years later. In March, 1875, in the predominantly Indian town of Izalco, people "believing that their rights were being threatened by the sale of an ejido, instead of going to the courts were led into disobedience and rebellion."^[28] A few months later priests and Indians joined forces in San Miguel. A priest by the name of Juan Manuel Palacios led a revolt that started with the opposition of street vendors to using the new market facilities built by the government. Between "3 to 4,000 male and female fiends robbed, burnt, and devastated all that they did not take away." As many as 300 principal families were threatened with death, and the military governor of San Miguel province was castrated and killed. His body received so much abuse that it was difficult to lift it from the ground to give it a decent burial.^[29]

The conflict between old and new ways was clear. The idea of selling their produce in an enclosed marketplace and having to pay rent for that privilege was completely alien to the Indians. Open markets in the central square had been the custom since before the arrival of the Spanish. The only thing needed to sell a product was to bring it to the central plaza, sit on the ground, and wait for customers. For the local authorities the new marketplace represented an effort to modernize the city, making it more European—how could anybody oppose it? In their view only culturally inferior Indians could not grasp the convenience of a clearner and orderly marketplace.^[30] The Indians lost that fight; their cause was hopeless. The San Miguel revolt was the last real threat to the triumphant liberal republic. The civilian leaders of the revolt were executed, and the main authorities of the Catholic church were sent into exile.^[31] Neither the church nor the Indian communities could gather resources to fight against an elite that was eager to expand its wealth and now enjoyed access to modern communications to coordinate troop movements. More importantly, the end of strong conservative governments in Guatemala removed the main obstacle to an attack against communal forms of land ownership.

The new liberal authorities had boundless faith in the free market. The example of the United States inspired them. President Valle delivered a message in 1876 summarizing these feelings; in his view the principle of laissez-faire, "observed with very few limitations in the United States of North America, has transformed deserts which until recently had been inaccessible into very beautiful cities; has criss-crossed the territory of the union with railroad tracks, and has taught and proven to the entire world the value and potential of free institutions."^[32] How could one apply those ideals in El Salvador? Certainly not by freeing the political system. The Salvadoran elite was not

ready to give up its privileges; before attempting to do anything so rash it was better to free the land market in order to bring prosperity.

Talk about the "evils" of communal land (a code phrase for Indian property) became commonplace. When in 1878 the governor of San Vicente tried to explain the stagnation of agriculture in his province, his explanation amounted to a threat. According to him, the reason for the wasteful use of land was "the lack of laws to regulate the cultivation of ejido lands, since it is not yet possible to turn them into private property."^[33] It was only a matter of patience; by the end of the year the mayor of the village of Mejicanos was proposing the distribution of commercial plants such as cacao, rubber, agave, and, of course, coffee. Those who devoted at least one-quarter of their ejidos to the cultivation of those crops were promised a title to that land. It was the kind of measure that received lavish praise from the government. Moreover, it deserved emulation: the municipalities of Soyapango, Ilopango, Tecolu-ca, and Villa Verapaz followed the progressive example of the mayor of Mejicanos.^[34] In his 1879 report to the legislature, the minister of government praised the action of those forward-looking towns and stressed the damage done by ejidos and communal lands, which, in his opinion, belonged to groups "removed from all progress and activity." "Let us cut, then, with a firm hand, the chains that enslave agriculture," he concluded.^[35] The day before, the president had signed legislation emulating at a national scale the example of Mejicanos. The door was open to the privatization of land. Governors were instructed to carry out a survey of land tenure to find out how much land was not privately owned. The process culminated with laws passed in 1881 and 1882 abolishing communal lands and ejidos. The export sector needed room to expand, and it was clear that communal lands and ejidos could be privatized without major political consequences.

Yes, the Indian communities did have a different way of doing things, but they were not an obstacle to the growth of the coffee industry or to economic growth in general. They participated in the market and were quite capable of playing a constructive role in the economy. In fact, after the 1879 legislation they made substantial efforts to cultivate coffee, and they had always engaged in the production of commercial crops.^[36] The liberal reforms were the culmination of a struggle for power. The local elite had strengthened its grip on power to such a degree that it could reorganize land tenure without fear of the reaction. There was resistance, but the social unrest that followed the reforms, although sometimes violent, was easily controlled. Indian communities could not match the weapons, the numbers, the organization, or the mobility of the army. Moreover, they had nobody to turn to for support. No other group in Salvadoran society had a community of interests with

them. By the end of the 1870s Salvadoran conservatives were not eager to defend traditional institutions; they had become coffee planters. (The leader of the conservatives was Dr. Manuel Gallardo, the successful planter mentioned earlier.)^[37] Guatemala had ceased to be a conservative stronghold. Indian revolts were bound to fail. There were revolts in 1884 in Izalco and Atiquizaya, in 1885 and in 1889 in Cojutepeque, and in 1898 in Santa Ana province. In the last revolt the peasants cut off the hands of the Jueces Repartidores Ejidales .^[38] Revolts were "a delicate problem," but there was an army to deal with them, and it did.^[39]

Statistical Analysis

Even though there was a political opportunity, it is still necessary to understand the economic incentives to take advantage of that opportunity. If it was necessary to turn to coffee because it became more profitable than other crops, then changes in coffee and indigo prices were important elements in the equation. To achieve growth, decisions have to be made as to how to allocate resources between a wide range of economic activities. The allocation of resources between coffee and indigo could not have been the same in 1830, when the price of a cwt. of coffee was four times the price of a pound of indigo, as in 1889 when the price of a cwt. of coffee was twenty-four times the price of a pound of indigo (see fig. 1). The behavior of relative prices across time is therefore important in the discussion of the profitability of coffee production.^[40]

But before starting, it will be convenient to describe the data used. Fortunately, coffee and indigo price series for the English market are readily available. These series have been deflated with the English industrial products price index. The industrial price index is preferred over the general price index because the value of the pound sterling for the Salvadoran exporter was a function of the amount of industrial goods (mainly textiles) that he could buy with the product of his exports. In other words, the deflated prices reflect monetary units used to purchase industrial products at constant prices. This procedure assumes that the contribution of indigo and coffee to the growth of the Salvadoran economy stemmed from their contribution to the country's capacity to import industrial products, which seems a reasonable assumption.

The value of coffee and indigo exports was not deflated because the official value for these exports was computed with the tarifa de aforos , which in the case of indigo remained at the same level during the entire nineteenth century and in the case of coffee changed only sporadically. The basic data set includes the following data series:^[41]

Figure 1. 
Relative Price

— Coffee prices in England (1864–1889);

— Indigo prices in England (1864–1889);

— Coffee exports (1864–1889);

— Indigo exports (1864–1889); and

— English industrial price index (1869 = 100).

These series were used to compute the following:

— Deflated coffee prices (1869 = 100);

— Deflated indigo prices (1869 = 100); and

— Relative prices (coffee prices over indigo prices).

A look at the data gives an idea of the main changes that took place in the structure of agricultural production. In 1864 the value of coffee exports was only 80,605 pesos; twenty years later it was above 2 million pesos. At the same time, the value of indigo exports declined slowly but steadily after a peak of 2,768,576 pesos reached in 1873 (see table 19). Part of the explanation of this phenomenon can be found in the changes in international prices of these products. Coffee prices in the English market increased after the mid-1870s.^[42] The average price in the period 1865–1870 was 57.48 shillings per cwt. and in the period 1876–1880 had increased to 95.36 shillings (adjusted for inflation). The average indigo prices for the same periods were 5.47 shillings and 4.66 shillings per pound. But to have a better understanding of the role played by prices in the change from indigo to coffee production it is necessary to analyze the data more closely.

A number of statistical manipulations were performed to understand this problem. These manipulations include regressions of coffee exports (dependent variable) on coffee and indigo prices, relative prices (price of coffee over price of indigo), and indigo exports. The results of the regressions are shown in table 22. The determination coefficient of the regression on coffee prices was 0.82, and it improved marginally when prices were entered with a lag of one year (in this case the determination coefficient was 0.85). This result is consistent with the interpretation of the liberal reforms as necessary for the growth of the export sector (which is not the same as saying that that was the case). Looking only at the figures one could say that coffee production expanded because prices went up; planters took advantage of the opportunities offered by the world market.

This tentative conclusion is reinforced by the results of the regression on relative prices. Presumably producers based their decisions not only on coffee prices but also on the alternatives available to them. Since the main alternative was indigo they considered the ratio of coffee to indigo

prices. Not surprisingly the regression in relative prices is significant: the determination coefficient is 0.79, and the slope of the regression line is quite steep. By contrast, coffee exports do not seem to be closely correlated to the amount of indigo exports. If part of the resources that were originally employed in indigo production were transferred to coffee, the correlation between coffee exports and indigo exports could be expected to be negative and strong. However, the correlation is not significant. One explanation for this puzzle is to be found in the strong fluctuations in the series of indigo exports. It has been discussed above how indigo production was very sensitive to disruptions created by wars, locusts, and droughts. This accounts for strong fluctuations that are not due to price variations or reallocation of resources but which affect the statistical analysis.

Moreover, these results point to the distinct possibility that coffee expanded instead by using resources previously used for food production rather than for indigo production. Although there are no direct data on food production for the 1880s, it is clear that despite its fluctuations indigo production fell very slowly during the second half of the century. This implies that most of the resources used for the expansion of coffee were diverted from food production. Resources were very scarce, and the rapid growth of coffee could not possibly come only from net growth. The liberal reforms, which affected Indian communities and ejidos traditionally linked to the production of foodstuffs, insured that coffee could expand at the expense of food.

The fact that statistical manipulations were consistent with the interpretation that the liberal reforms were necessary for the growth of the export sector can be substantially modified when one looks more closely at the policy of incentives followed by the government. The incentives

given by the government to stimulate coffee production greatly reinforced market signals. If the benefits to be obtained from coffee production included not only the income from the sales of the beans but also the land where they were produced, land had no opportunity cost for the producer. Instead, land was counted among the benefits. Under such circumstances it would have been hard to find attractive any other productive alternative; as a result, coffee production expanded more and faster than what would have been suggested by market signals. Coffee planters took advantage of the opportunities opened up by changes in the international markets and, also, by changes in the rules of the game dictated by governments run by planters. A policy of incentives for one product led to a reallocation of resources that had a very direct impact on welfare. The liberal reforms affected the allocation of resources between alternative products and also between different social groups. In the 1850s changes in transportation costs had made production of export crops more attractive than food staples; in the 1880s that trend was dramatically strengthened by adding land to the benefits. As a result Indian communities lost their land and had to pay higher prices for food.

It is clear that government policies tipped the scale in favor of coffee production, but what kind of case did the government have to justify its policies? When the legislation was passed in 1881 and 1882 the behavior of prices did not offer an altogether clear message. Figure 1 shows a decrease of coffee prices relative to indigo prices from 1848 to 1869, then an increase until 1874, a plateau lasting five years, a decline from 1879 to 1885 and, from then on, a rapid increase. The price situation faced by the producers at the time of the new land laws was not clear. The effects of the invention of synthetic dyes on indigo prices were slow to appear. The most important breakthrough in the production of artificial dyes took place in 1883 with the discovery of the chemical structure of indigo, but it took over fifteen years to find an economically feasible substitute for indigo.

Despite the uncertainty about prices that was perceived in 1881, the liberal legislators imposed a program of very radical reforms. In the final analysis their decision was correct in one sense—coffee prices soared and, therefore, it made sense to specialize in its production. But it is difficult to argue that the data available to the legislators at the time that they made their decision supported the need for such radical changes in property holding. A posteriori, the decision made sense. A priori, it was a big risk for the country as a whole, although it was a huge success from the point of view of the planters. The change had economic costs. Government policies distorted market signals and encouraged the economy to move away from food production. The social costs of the

new legislation were far reaching: the privatization of land unleashed market forces that put Indian communities and small peasants at a disadvantage, great numbers of peasants ended up dispossessed of their land, and wealth distribution was radically changed. The possibilities of a more harmonious growth of the economy and society were eliminated.

It seems clear that changes in relative prices did call for a reallocation of the factors of production, but the timing and the means used to carry out such goals are highly questionable. Such extraordinary government measures were unnecessary to promote growth. Indeed, when the economic stimulus was powerful enough, as in the case of the cotton boom earlier in the century, the different economic units could adapt rapidly to the new conditions without having to change the structure of land tenure.

There was a political opportunity and an economic incentive, but even if it made sense to switch to coffee production, land redistribution was not the only alternative open to the liberal leaders. There were three markets that could respond to government intervention: land, labor, and credit. The liberal reforms affected the first two and left the last one intact. It was an ironic choice since the main difficulty in the cultivation of coffee was the high startup cost of coffee plantations.

Further insight into the problem can be gained by analyzing the alternatives available to the government. The land market was a clear choice. The very importance and the geographical location of much of the ejidos and communal lands made them tempting, but the evidence suggests that even without government intervention the land market was changing rapidly and so was the balance between the different factors of production. Even before the full implementation of the liberal reforms in the early 1880s the pressure of export agriculture on land was becoming apparent. Land has always been a symbol of wealth and very desirable, but land is only one of many forms of holding wealth. It is desirable as long as it can be put to productive use or can provide capital gains. In the years after independence land had been abundant relative to capital and labor, and sales of terrenos baldíos kept prices at roughly the same levels. There was no incentive to hold land for capital gains since its price was not rising. The shortage of labor made it impossible to expand cultivation beyond certain limits, and the pressure of demand was not felt in full force. By the 1880s the picture had changed. Demographic and economic growth had altered the relative position of land and labor. The population had grown and, although it cannot be said that labor was abundant, it was enough to satisfy the needs of the growing demand. At the same time the growth of international trade made it possible to exploit more land.

(A fine point of interpretation is in order. In El Salvador coffee pro

duction was the new element that made land more attractive and, thus, scarce in the economic sense. Hence, the introduction of coffee is considered the key to understanding the liberal reforms. Although the demand for coffee was instrumental in making land scarce, by stressing the concept of land scarcity the problem can be related to similar events in other parts of the American continent, thus highlighting both the specific features of the Salvadoran process and its participation in a broader phenomenon. The extension of railroad networks in Mexico and Argentina and the Indian wars in the latter country were efforts to alleviate the pressure on land. In El Salvador, demand for land increased but no more public land was available; the competition for it became more urgent, and the methods to acquire it were ruthless.)

The impact of export agriculture on traditional forms of land tenure prior to the reforms can be illuminated by an analysis of the wide variation in the percentage of ejido land between provinces (see table 23, col. 7). Although data limitations make it difficult to draw definite conclusions, it is useful to compare the degree of privatization in the different provinces with their share of the total of indigo production. There are two possible hypotheses with regards to the relationship between concentration of indigo production and ejido lands.^[43] One is that land was more attractive in the areas where indigo was cultivated more intensively and, therefore, haciendas expanded at the expense of ejidos and communal land. In those areas indigo planters took advantage of every opportunity (legal or otherwise) to acquire new land and, after a while, the percentage of private land increased. For this hypothesis to make sense land scarcity had to be felt well before 1880.

A different possibility is that the scarce resource was labor and not land. In that case indigo haciendas would have had an incentive to be close to population centers where labor was available either for hire or, in colonial times, in the form of repartimiento. Ejidos and communal lands were a reserve of low-cost labor, and the haciendas wanted to profit from that reserve. If this was the case, it can be expected that the areas where indigo was cultivated intensively also had the highest concentration of ejidos and communal lands.

Table 23 compares indigo production with the amount of ejido land in each province. The data on this table were used to test the correlation between the percentage of ejido land and indigo production in each province. As the provinces were of different sizes, the total amount of indigo production is not the relevant measure. Instead, it seems that the ratio of indigo production to arable land gives a better idea of the importance of indigo in each province.^[44] The latter ratio was used to rank the provinces according to intensity of indigo production and percentages of ejido land. A Spearman rank-order correlation was used to

compare these ranks. The value of Spearman correlation coefficient was-0.66, which indicates the ejido land was less prevalent in provinces where indigo was important. This result favors the scarce-land hypothesis. The rapid expansion of export agriculture made land more attractive, and planters found ways to acquire ejidos and communal lands.

Since the data are incomplete, the test just performed, by itself, is not enough to be conclusive. Among the provinces not included in the computation were some, like San Miguel, which were important producers of indigo. Nonetheless, the same rank test was performed with the totals (as opposed to percentages) of ejido land and indigo production, and with combinations of total values and percentages, and in all cases Spearman's r was negative and had an absolute value above 0.50. This indicates, at least, that the pressures of commercial agriculture were already eroding the institutions of ejido and communal land.

Changes in land tenure were directly linked to changes in the labor market. Authors such as Rafael Menjívar give great importance to this link. In his book Acumulación originaria he argues that ejidos and communal lands were eliminated due to "the need to integrate land to capital in coffee activities and the need for free labor."^[45] That is, one of the reasons for the liberal reforms was to increase the availability of labor by denying access to land to an important sector of the population. This interpretation assumes that labor was becoming scarce because of the increased demand created by the specific characteristics of coffee production. It is difficult to be conclusive about his point. The results of the comparison between concentration of indigo production and concentration of ejido land and most of the qualitative evidence suggest that labor was scarce even for the production of indigo. If this is the case, the new element in the process is land scarcity, and labor scarcity can be considered to be a constant. That is, the liberal reforms were triggered by the pressure on land created by the new opportunities created by the opening of the economy. This stress on land scarcity does not deny the fact that it was very convenient for plantation owners to have a greater pool of landless peasants to recruit labor from. What is important to emphasize is that land scarcity was already eroding the ejidos and communal lands without any change in legislation.

Despite the importance of land, the efforts to modernize the markets could have focused on the credit market rather than on the land market. It can be argued that the backwardness of financial institutions was a greater obstacle to the expansion of coffee than the scarcity of land. There were precedents. Credit mechanisms, however rudimentary, had existed since colonial times. In the 1800s Guatemalan merchants advanced money and goods to the big planters, who in turn gave credit to the smaller planters, and the Montepío de cosecheros de añil had been

an important credit institution. But the system was so informal and the legal system so inadequate that risks were high and transaction costs onerous. The realities of coffee production demanded a more modern system. New credit institutions could have solved the problem of investment costs. Even private credit with high interest rates would have been a more efficient solution than the elimination of ejidos and communal lands.

There is no reason to believe that the Indian communities were an obstacle to growth. They were perfectly efficient within the limits imposed by their agricultural knowledge, and ejidos and communal lands had produced commercial crops for a long time before the reforms. The more "backward" elements of society had a long tradition of successfully competing in the marketplace. They had the land and the willingness to work, and faced the same obstacles as everyone else: difficult access to credit and to new agricultural techniques. But under the new realities imposed by the expansion of coffee they would lose their lands, and no effort was made to provide them with credit or education. Ejidos and communal lands had been used for commercial crops for a long time before the reforms. The more "backward" elements of society had not shied away from participation in the market economy. When the government pushed them to produce coffee they were ready to try in order to avoid losing their lands; they understood the incentives perfectly well, even though the fact that they had not had access to education put them at a disadvantage. Browning asserts that the weight of evidence suggests that by the 1880s the villages had made positive efforts to increase coffee production and had considerable success in doing so.^[46] Maybe, but even if they had rapidly learned the new cultivation techniques, the lack of credit would have placed an enormous obstacle to their efforts. Thus, the failure to modernize the credit system was an important element to insure that only the elite would be able to profit from the coffee business. They could have done it; other countries of Latin America, such as Colombia and Costa Rica, with organizational problems similar to El Salvador's, but with different allocation of resources and political options, did find ways to finance investment in coffee plantations. In those countries coffee plantations prospered without abrupt changes in land tenure, and credit systems developed to satisfy the needs of the planters. Mortgage credit, future sales, and direct credit from foreign houses solved the problem.^[47] In fact, El Salvador was developing the same mechanisms quite rapidly. There is no question that it was a difficult task. The initial cost of updating financial laws and setting up a banking system would be followed by the difficulties of managing complex operations. The transaction costs of lending to a great number of small producers would have been high, and enforcing repayment

would have been a major undertaking and a source of constant tensions. The lack of people with knowledge or expertise in financial matters made the problem worse.

The practical dimension tilted the scale against a sweeping credit reform. It was easier for a poorly organized and underfunded central government with little expertise in financial matters to unleash the land market than to organize the credit market. In the end the enforcement of the new arrangements was ultimately left in the hands of the new landlords, and the state did not commit itself to a long-term involvement beyond its capabilities.

If the state was to play any role in modernizing the economy, the land tenure system was the easiest target, but by no means the only one. The goal of modernizing the credit market was within reach, and it was quite possible to leave ejidos and communal lands alone and still produce coffee. Every choice, be it to modernize the markets of land, credit, or labor, involved technical as well as political difficulties, but none was impossible. The final result, the liberal reforms, provides a snapshot of the economic and political balance in the 1880s. After all, not every country would have found it easy to change the rules of the game for an important segment of the population without fearing a major social upheaval. Choices were made not only in terms of growth but also in terms of allocation of resources between different social groups.

Extent and Timing of Land Transfer

The extent of the land transfer is not entirely clear. Some communal lands were successfully claimed by their occupants. But changes in land tenure followed the pattern imposed by the profitability of land. Browning makes this point when he states:

Villages away from the coffee areas were less affected by abolition: their more dispersed population meant that the many villagers who lived and worked on isolated plots were able to claim these by right of possession, as poseedores actuales ; there was less competition for the common lands and less intrusion into them by private estates; the character of the private estates, generally cattle haciendas with large areas of uncultivated land, allowed continued unregulated settlement by squatters, unlike the coffee plantations.^[48]

These variations in the transfer of land tenure strengthen the interpretation that the liberal reforms were the product of competition for

scarce land and the unequal distribution of power between the elite and the Indian communities and towns. Where land was less attractive and, therefore, there were less incentives to compete, the villagers were allowed to claim their land.

The transfer of land took more time than the liberal leaders had expected. The administration of the process of issuing new titles for all the ejidos and communal lands proved to be difficult. The law of 1882 gave six months to occupants to claim ejido land. They were supposed to go to the mayor of the municipality where the land was located, prove that they were cultivating the land, pay a fee, and obtain a title to the land. If they failed to claim the land, after the six-month period they would lose their rights and the land could be sold in public auction. It was most unreasonable to assume that the process could take so little time. Before long it was realized that six months was too short a period; the municipalities were inundated with claims and the period was extended. Many mayors were illiterate, did not understand the law, or found it to their advantage not to understand it. Indian communities, in turn, showed "little will to divide their property."^[49] The problem was complicated further when the government required that titles should be registered in the land registry. In March 1884 the executive branch was still extending the period for issuing titles for ejidos. The extensions were always short, between three and six months, and seem to have been enacted to ease administrative problems rather than to make it easier for the villagers to claim their lands.

It is not difficult to imagine the obstacles in granting land titles. The efforts of powerful individuals to take undue advantage of the laws, the number of claims, and the limited ability of new institutions to handle the problem contributed to lengthen and complicate the process. The legal system was slow, and issuing land titles was a "delicate problem" that opened up opportunities to the unscrupulous. Skilled lawyers hired by rich landowners with friends in high office had an edge over illiterate peasants. That natural advantage was magnified by the lack of distinction between public and private interests. An illustration of this problem is given by the ordeals of a British merchant who, frustrated with Salvadoran political and judicial systems, asked his government to help him. Moses Levy, who had businesses in El Salvador, complained to the Foreign Office in 1881 that El Salvador was a small country "where the natives are bound together by ties of consanguinity, intermarriage or similarity of interests and where it often happens that men of unprincipled character are raised to positions of influence, whence they can use their power to defeat the ends of justice; it is easy for persons to arrange together to bring about this wholesale system of robbery."^[50] Poor Mr. Levy was talking about his personal battle to settle financial claims and

not about the liberal reforms, but the situation of illiterate members of Indian communities could not have been better.

Notices published in the Diario Oficial provide a glimpse of the problems encountered. In July 1882, Higinio Calderón, administrator of the common lands of the town of San Ignacio, published a notice announcing that he was dividing the property up and giving an ultimatum to prospective claimants to voice their claims or lose them. Two weeks later Natividad Flores, the rightful administrator of the lands, challenged Sr. Calderón's rights to carry out the partition. Sr. Flores, it turned out, was illiterate. He was lucky that somebody warned him of the notice, but the trick was clever, and it is very likely that it was imitated by many. Most of the land was owned by illiterate people who could easily miss a newspaper notice. Many of the problems in registering lands had nothing to do with the complexity of the law but, as the governor of San Vicente pointed out, they arose because "some councilmen oppose their private interests to the common good."^[51]

Even under ideal circumstances the practical aspects of giving land titles for one-quarter of the national territory were overwhelming. A random sample of ejido lands that received title in the western provinces between 1882 and 1885 helps to illustrate the problem. The average size of each ejido plot claimed was 30.38 hectares at an average price of two pesos per hectare.^[52] The average size of the communal land plots claimed was even smaller, 23.625 hectares. This means that if ejidos and communal lands accounted for about 25 percent of the territory of the western region it would have been necessary to register more than 3,500 titles. During its first three years the Registro de la propiedad raiz de la sección de occidente registered 2,169 titles and transactions, 20 percent of which did not involve claims of ejidos or communal lands.

For those who wanted to take a more serious approach the practical problems were even greater. The Indian community of the village of Coatepeque hired a surveyor to divide its land among its four hundred members. It was a relatively rich community that owned 2,961 hectares of land. But imagine the problem if every community tried to be scientific about distributing its land. El Salvador simply did not have enough surveyors to do the job. As late as 1898 El Salvador had only nine individuals who called themselves civil engineers and who were just a little more than surveyors. The National University began teaching civil engineering in 1879. Conflicts about the partition of land were bound to arise.

The situation was further complicated by the different idea of land espoused by the Indian communities.^[53] Traditionally balsam growers owned balsam trees although the land on which they sat belonged to the community. With the privatization of land the rights of the tree owners

could not be ignored. When the land of Santa Isabel Ishuatán, a village located on the balsam coast, was distributed, the titles indicated that "if the land included balsam trees belonging to third parties, [the title holder] should allow the tree owners to cultivate and extract balsam from them. Both the title holder and the tree owners would have to pay a fine of ten pesos per tree if trees are destroyed."^[54] (The fine was substantial; the average market price of land was about eighteen pesos per hectare.) Similar provisions were included in titles issued by the village of Caluco, Sonsonate. Not surprisingly, it took more than six months to privatize all the land in the country. In order to obtain final title it was necessary to publish three notices in the Diario Oficial . In some instances the last notice was not published until 1899.^[55] After ten years the problem still was, in the words of the minister of government and war, "annoying in a thousand ways, of a serious character, and delicate."^[56] The last disputed lands became national property in 1891, and the last chapter of the "annoying" story was written in March 1897, when the Ley de titulación

de predios rústicos was passed. By that law the government gave away its rights on former ejidos and communal lands to those who occupied them in good faith.^[57]

Evidence from the land registry indicates that the privatized land was not equitably distributed. But this was not by any means a new feature in the Salvadoran landscape. A study of the size of private plots and ejidos in our sample shows a great degree of inequality in both categories. Most plots were under 5 hectares, but most of the agricultural land of the country was in larger estates of more than 100 hectares (see tables 24–27).^[58] In the case of the ejidos 73 percent of the land was given to 5.68 of the new owners whereas the 50 percent less fortunate scrambled for a share of 3.45 percent of the land. Private land was distributed in a similar fashion. The larger estates, 14.51 percent of the total, accounted for 81.9 percent of the land, whereas plots under 5 hectares, 54.83 percent of the total, accounted for 2.64 percent of the land. Multiple ownership was more likely to occur in the case of larger estates than in the case of smaller ones. This suggests that the reforms reinforced a trend

that was already very well established: they brought nonprivate land into line with the rest of the country. Ejidos and communal lands were already on their way out; the pressure of export agriculture was already eroding traditional forms of land tenure. The generalized inequality in land distribution may not have originated with the liberal reforms, but the reforms certainly helped to make the phenomenon lasting. By 1950 the situation had not improved. According to that year's census only 1.17 percent of all the agricultural properties in the country were greater than 100 hectares, but they accounted for 50 percent of the arable land. By contrast, 42.56 percent of the properties were under 5 hectares and accounted for only 11.62 percent of the arable land.^[59] By an overwhelming majority, the people who claimed land described themselves as agricultores or jornaleros (day laborers), but the reforms opened up opportunities for other people. Among those who claimed to have rights to ejidos and common lands one finds construction workers, blacksmiths, teachers, merchants, lawyers, physicians and, in the case of one of the largest claims, a field marshal.

The liberal reforms did not affect 40 percent of the Salvadoran territory, were not the beginning of land concentration or of minifundios , and were not indispensable for the expansion of coffee production. But no matter how much one may qualify the argument, they still stand out as a highly symbolic event in the economic and social history of the country. They epitomized and accelerated the changes that took place in the nineteenth century: the opening of the economy, the strengthening of an elite, the emergence of a numerous landless peasantry, and the increasing importance of coffee production. The reforms were not imposed to achieve economic efficiency, nor did radical redistribution of land achieve more growth than what a slower and more equitable process would have accomplished. The reforms arose from the struggle between different social groups to claim the benefits of the land, and not from the efforts of an enlightened minority to increase the efficiency of the economy.

7
A Land of Coffee Planters

In the last two decades of the nineteenth century, the structure of agricultural production in El Salvador changed substantially. As coffee exports increased, the Salvadoran economy was opened to the rest of the world. Not only coffee became the most important cash crop, but exports in general became a more important part of the economy. By the 1880s land scarcity had become a serious problem, but by that time the scarcity of credit and entrepreneurial talent had already helped to consolidate an elite; the liberal reforms followed. Changes in international markets, together with the liberal reforms, had transformed the country. Coffee's share to total exports increased from 59 percent in 1882 to 83 percent in 1900, and coffee became the main source of income for members of the ruling class. In 1895 a majority of the members of the Salvadoran legislature were coffee planters.^[1] The elite was small and mostly white; whites of Spanish origin were estimated to be about 8 percent of the whole population, and they were "the exclusive office holding and law making class."^[2] With the profits generated by coffee exports they acquired a veneer of modernity.^[3] The new face of the country was presented to the world at the Exposition Universel in 1889. It was not a contradiction that to finance the exhibit money had to be borrowed from Lazard, Frères & Co.^[4] For its inhabitants the country seemed to have gone a long way, but in order to display its prosperity to the rest of the world it had to ask for room in the Mexican pavilion and to borrow money from a French banker.

Politics changed as a result of the expansion of export agriculture.

Liberals reigned; the old conflict between conservatives and liberals was gone. Liberal ideas inspired the 1886 constitution, the most influential constitution in the history of the country.^[5] The main political issue was to find the best way to protect the coffee planters. President Ezeta (1890–1894) was overthrown when he mismanaged a financial crisis and dared to double the export duty on coffee. His successor, Rafael Gutiérrez (1894–1898), repealed the tax. Gutiérrez was overthrown when the drop in coffee prices in 1898 led to a financial crisis that he could not handle. From 1898, when Tomás Regalado (founder of one of the legendary catorce familias ) overthrew Rafael Gutiérrez, to 1931, there were no coups d'etat and all the presidents were coffee planters. Politicians still plotted to obtain power by staging a coup, but none could find enough support from an elite for whom stability had acquired a new value. The only unsavory incident that affected the presidency during that period was the assassination of President Manuel Enrique Araujo. The motives of the crime were never cleared up, but insistent rumors linked it to business rivalries rather than to ideological differences. There was a sort of pax coffeana . The reasons for this stability have been suggested above—the elite had a firm grip on power and required stability to maximize profits. Undoubtedly there were tensions within the elite, but the interests of most of its members were very similar.

All the elite families were committed to foreign markets; the organization of coffee production was more homogeneous than the organization of indigo ever had been. As coffee was more valuable and more labor intensive than indigo, the losses from taking labor away from productive activities could be very high. The American vice-consul, reporting on the coup that brought Regalado to power, illustrated this point:

All business is at a standstill and as this is the time of picking coffee and no male coffee pickers can be had, and all horses, mules, carts, and oxen are pressed in for military service, the loss to the coffee planters will be very great.

At the end of the coup he reported:

It is very fortunate that this revolution is ended as the coffee season is about to commence and if it would have lasted a month longer the greater part of the coffee crop would have been lost.^[6]

The incentives to maintain stability were higher than ever before and were shared by all those who had the capacity to cause trouble to the government. The restless military found an outlet in conflicts with other Central American countries, but all disruptions of peace in Central

America were rapidly checked. Due to the new importance of foreign trade and to interest in a canal through the Isthmus, the United States government regularly intervened to restore peace in the region and promoted peace conferences that culminated in the Washington Treaties of 1907.

The new century was born under the sign of coffee. Every crisis seemed to reinforce the power of the elite of coffee planters. After the crisis of 1898 there was no question, the planters were there to stay, their interests became law. From then on they ruled the country uncontested until 1931 when they began sharing power with the military.

Foreign Trade

Exports increased rapidly in the last three decades of the century (see tables 19 and 20).^[7] Although indigo production declined slowly, coffee production took off with zest. Indigo exports reached a level of 2,069,100 pounds in 1871, and in 1896 they had gone down to 1,277,293 pounds. In comparison to indigo's decline coffee grew vigorously. Using the same years to compare, in 1871 a total of 4,471,300 pounds of coffee was exported, while in 1896 that figure had increased more than fivefold to 25,266,134 pounds.^[8] It is clear that the growth of coffee was not all at the expense of indigo. Some of it was net growth and some was at the expense of other economic activities. In fact, the average yearly growth of total exports between 1870 and 1895 was 3.5 percent, a faster rate than would be reasonable to expect from the economy as a whole.^[9] Although there were significant ups and downs in imports and exports, the economy was becoming increasingly open.

The move from indigo to coffee and the service provided by the Panama Railroad permitted a diversification of trading partners. During the first half of the century it had been necessary to rely mostly on the British vessels that arrived at Belize or on the occasional ship that visited Acajutla. Not surprisingly Great Britain had the virtual monopoly of the country's foreign trade. After 1855 there were more alternatives. At the Colón terminus of the Panama Railroad there were British, French, German, and American steamships and sailing vessels waiting to take goods to every corner of the world. Moreover, the rapid growth of California provided a formidable market on the Pacific coast. By the end of the century Great Britain was just another market for Salvadoran products, at the same level as Germany or France. The United States, by contrast, was taking a clear lead. In 1892 it received more than 40 percent of Salvadoran exports, the greatest share of which went to

California (see table 28).^[10] California exports were reported separate from exports to the rest of the United States from 1886 to 1889, and during those four years the share of California was never below 65 percent (1887) and could be as high as 84 percent (1889). Most of the revenue generated by the rapid expansion of exports was used to buy manufactured goods, textiles in particular. During the last quarter of the century textile imports accounted for one-half to one-third of yearly imports. No other category of imports even approached them in importance. Machinery, for example, never reached 5 percent. All other items such as iron tools, liquor, flour, drugs, earthenware, glassware, books, and furniture were imported in minor quantities. The Salvadoran elite did not engage in lavish shopping; an analysis of imports leaves a distinct impression of frugality, of a country buying basic things that it cannot produce.^[11] In the case of imports, England lost ground to other trading partners, but in a lesser amount than in the case of exports. Up until 1892 the English, the leading producers of textiles, were still ahead of the Americans when it came to imports. That year 32 percent of total imports came from England.^[12]

The expansion of exports benefited from the liberal reforms and, at the same time, contributed to reinforce their results. Coffee exports produced revenue to finance armies, public works, and even schools. There was a sense of direction, and the direction was given by the coffee industry. After land was redistributed, labor had to be organized differently, banks had to be created, trade had to be rechanneled. At the same time, it did not take long before the country was reminded of the disadvantages of an open economy.

Labor

As the economy was growing and becoming more open, labor became less and less able to reap the benefits of the newly found abundance. Population growth and land redistribution greatly increased the amount of labor available. This was in marked contrast with the first half of the century. "Labor is fairly plentiful," wrote an anonymous planter, "it seldom being necessary to hunt up work people for an estate justly managed."^[13] Laborers kept moving from farm to farm, and few of them found permanent jobs. They were "constantly on the move, working here one, two, or three weeks and then passing to another estate."^[14] Years earlier, peasants found temporary work in indigo haciendas and spent the rest of the year in their ejidos or communal lands; by the end of the century that option was not available any more. Patterns of labor migration that later became a hallmark of rural life in El Salvador were developed during this period.

The abundance of labor made life easy for the planters. Finding people to work on a plantation was very simple. On Monday mornings the administrator rang the bell of the finca to call those interested in working. Then, he allocated the different tasks according to the agricultural needs of the moment and selected a few as day laborers to carry out miscellaneous jobs. Each finca had a few men employed by the month to take care of regular administrative and housekeeping activities in addition to one or two foremen, a cattleman, a house servant, a stableman or two, a cook, and the like.

Working days were long, from 6 A.M . to 5 P.M . Work was from Monday to Friday. On Saturday mornings the foremen and the administrator received the completed tasks. Afterward, the workers returned their tools to the store and, at three in the afternoon, they waited in line to receive payment. Food was part of the compensation. The composition of the diet had not changed much during the century: "The food served to the ordinary workman," wrote our anonymous planter, "consists solely of tortillas and frijoles."^[15] There were two meals a day, and the normal ration consisted of two tortillas and a handful of beans. Women received smaller tortillas. If a worker had to work at night, he or she received double pay and an extra meal. The average daily cost to the planter to feed each worker was between one-quarter and one-half real. The planters made sure that nobody had a second ration; before going to the kitchen each worker received a token that could be exchanged for a meal. The system was also useful to put a check on the cook. To supplement their diets "laborers always look for a farm well supplied with fruit trees, the produce of which they eat in great quantities and in

a perfectly green state, which however seems to do them little or no harm."^[16]

In 1886 wages were still two reales per day (one and a half reales in remote estates), the same as in 1858, but maize prices were considerably higher.^[17] In 1858 the average cost of the fanega of maize was 1.86 pesos (see table 15), and by 1885 it had increased to five pesos. Permanent laborers were slightly better paid; monthly wages were between eight and ten pesos. Cooks, servants, and cattlemen had similar wages. A second foreman earned twelve pesos, and a first foreman between twenty and thirty pesos, while finca administrators earned between eighty and one hundred pesos per month. This wage structure illustrates the peculiarities of the new labor market that had developed after the liberal reforms and the introduction of coffee. Administrators gained in importance in the bigger plantations; they were needed to organize more complicated tasks and a larger labor force. The wage difference between administrators and common laborers shows the importance of the role of the former; an administrator could earn ten times more than a simple peasant. It was difficult to find a person with skill; the planters themselves were not always very able. In the view of an observer:

[T]he greater number of planters both of coffee and sugar, and I may include maize, beans, and tobacco, are equally and in many cases more deplorably ignorant than their work people, who are for the most part an industrious, sober and peaceable set.^[18]

Real wages were definitely lower in the 1890s than in the 1850s. The purchasing power of the nominal wage of two reales had diminished considerably with the increase in the price of maize, the primary component of a peasants diet. The fact that workers received meals as part of their remuneration did not offset the increase in the price of maize because they still had to feed their families. It is clear that peasants, abundant in numbers and dispossessed of their lands, had less bargaining power than before. The subordinate position of peasants and the greater social control exerted by the elite contributed to depress wages. When it was necessary to recruit large numbers of cheap labor to fight locust plagues, rich landowners induced the government to literally conscript workers, "even at bayonet point." In those cases, "each of the involuntary toilers is paid a real per diem, a sum supplying tortillas and frijoles enough to sustain life."^[19] This was a wage clearly below the market rate of two pesos plus food.

The system of advancing wages inherited from the colonial era was still alive.

The system that has been and still is in vogue in these Republics of advancing money to work people on account of work to be done, in an indiscriminate and careless manner, has done much harm to both workman and master. In nearly all cases the master loses both his money and workman, while the money advanced is spent by the latter in some game of chance or in drink.^[20]

Men who worked in the countryside dressed very simply—unbleached calico shirts and trousers, and no shoes. Their complete wardrobe consisted of two such suits. They also had a rough cotton sheet to wrap themselves in at night. A workman spent between ten and twelve pesos in clothing a year. Housing was as frugal as clothing and food. The planter provided laborers with free housing, but the dwellings were of the most elementary nature: a thatched roof and dirt floors were all that peasants were offered.

Direct hiring was not the only way to obtain labor services. There was also a lease arrangement that was, in the final analysis, a form of recruiting labor. Large plantations had the custom of giving land to any "respectable man" who wanted to cultivate it. Virgin land was loaned for one crop, and no monetary payment was required; the only payment was clearing the land. This arrangement was convenient for the owner because he did not have to worry about labor supervision and administration, and he did not have to be concerned with the uncertainties of agricultural production. The only cost for the owner to have his land cleared was the opportunity cost of not being able to use a plot of virgin land during one year. A few laborers were allowed to live on the plantations all year round, and they (the so called colonos ) were given small plots of land to cultivate maize or beans. In that way the planter had access to stable year-round labor.

Agricultural tasks were carried out with the simplest tools. A machete, a large hoe, and a bill hook were the most used implements. Machetes, then as today, had various uses, from pruning to clearing the ground. Ploughs were made with "a triangular piece of iron about four inches broad at the base fastened to a pole." They were rudimentary and could not dig very deep into the soil. Larger plantations used American ploughs.^[21] Irrigation was unheard of. Consul Tunstall replied to an inquiry of the Department of State by reporting that "... no system of irrigation is practiced in this consular district or in the Republic of El Salvador."^[22] Fertilizers, natural and artificial, were seldom used. The most common agricultural practice to recuperate the soil was to "burn all the weeds and refuse on the fields and to spread the ashes from the furnaces, and the skimmings and settlings from the [sugar cane] juice treated with lime."^[23]

Whatever the appearance of backwardness in the rural sector, Salvadorans had learned how to produce coffee and did it well. Large labor gangs were organized to carry out complex tasks. As discussed above, one of many possible ways was chosen to organize production in the countryside. The one chosen carried great social costs. It was not only a productive activity that was taking shape, it was a society.

Credit and Money

Coffee cultivation changed the organization of agricultural units and the relationship between landlord and laborer. It also influenced credit institutions. Partly because of economic growth and the overall modernization of institutions, and partly because of the specific credit demands of coffee cultivation, banking developed rapidly and in a disorderly fashion during the last twenty years of the century. Whereas in 1880 there was only one bank, in 1898 there were six.

Capital was scarce relative to the other factors of production, but the situation improved with the increase in foreign trade. Coffee planters obtained the credit necessary to invest from their European buyers, and the local banks expanded their activities thanks to the deposits of the planters. Nonetheless, the country was in great need of capital to increase the production of coffee. A good illustration of the scarcity of capital relative to labor can be found in the advice given by the American consul to prospective immigrants.

There are at this present time very first-rate opportunities offering to men of industry and sobriety who will put a little intelligent work into the land. Men of this description with a moderate capital of, say five to fifteen thousand dollars, are the men required here. At the same time others with smaller capital have very great advantages of making money from the outset; but those who come merely seeking work will find themselves hopelessly miserable.^[24]

Foreigners were desirable as long as they came with capital and skills. Most often their skills were their greatest asset. Human capital was the scarcest kind. In fact, the immigrants who found success in El Salvador were those who followed the pattern suggested by Consul Duke, including Duke himself. At the end of the century a few foreigners with skill, capital, and business connections in Europe and the United States resisted the temptation to go to Argentina or other more promising places and settled in El Salvador. By and large they had successful careers (more on this later). By contrast, those immigrants who had only their labor to offer had a very difficult time. American consular reports were

full of appeals to the Department of State for funds to protect destitute Americans. Many went to Central America in the hope of finding jobs in railroad construction:

They all claim to have been induced to come here by reports of extensive railroad building and good wages, either in Salvador or some other country, and when they discovered their mistake, they had no means to return.^[25]

El Salvador was not an Argentina full of resources and empty of people. However, the people who lived in the country had not had much of a chance to acquire an education and needed help to do many of the things necessary to achieve their dream of progress.

The lack of educated people made it difficult to organize complex economic activities that required specialized skills. One of those activities was banking. Before the first bank was founded in 1880 there were no financial institutions to speak of. Money was lent by private individuals at high interest rates, and mortgages were difficult because of the prevailing uncertainty over land ownership.^[26] Many efforts to establish local banks failed. Nobody in the country quite knew how to operate a bank and, anyhow, there was no capital to get one started. It was necessary to find a foreigner courageous enough to take a high risk in a country where political stability was not guaranteed, that had no well established export product, and where land rights (and therefore the possibility of mortgages) were not always clear. The first brave man was William Kelly, an English merchant who in 1867 signed a contract with the Salvadoran government to found a bank.^[27] Despite all the guarantees offered by the local authorities Kelly's effort failed. After the 1867 attempt every administration tried to find foreign capitalists willing to establish a bank. Five years later, for example, the next administration sent a special agent to England to negotiate the subscription of stock to finance the operation. Contracts were signed with Don Francisco de Paula Suárez in 1874 and in 1877. Don Francisco tried to raise funds and published a pamphlet publicizing the virtues of the young and promising Republic but, again, there were no results.^[28] At last, in 1880, the first successful bank, the Banco Internacional, was founded. Don Francisco's pamphlet, after all, was not altogether baseless.

Before the end of the century six more banks had been authorized and, although not all of them were successful, the survivors prospered rapidly. Thanks to the development of the coffee industry and to changes in land tenure it was finally possible to make a good profit out of banking. Given the direct link of banking to the growth of the coffee industry, it is not surprising that two of the banks had their headquarters

in the western provinces.^[29] The origin of the funds used to create the new financial institutions is not clear, although in the last resort they were possible thanks to the revenues generated by coffee. Important planters did not have the skill to run banks, but they participated in their organization and were their main stockholders. Following the pattern set by other complex economic activities, all banks had at least one foreign partner or manager.

If the Salvadoran financial system was found slow and imperfect, the option of borrowing money from abroad was always open. The bad credit of the early years of the federation was, in every sense, a thing of the past. As soon as exports began to grow, El Salvador improved its credit standing by settling its portion of the federal debt. In 1861 the government made an arrangement with George B. Kerferd & Co., a Liverpool house that did business in El Salvador, by which Kerferd & Co. agreed to pay the balance of the debt in exchange for exemptions in customs taxes. The system worked quite well, and in two years the full debt of 405,360 pesos had been covered.^[30] This was an indication of the changing economic environment and of the extent of business of Kerferd & Co. in El Salvador.

In order to finance their production costs, small planters sold their crop in advance to companies such as Kerferd & Co. There was no guarantee other than the crop, and the price was fixed at the time of the purchase. One of the advantages of this system was that the producer was insulated from the fluctuations of the international price. The system, known as habilitación, could be quite profitable for the buyer. In some instances he paid as little as 50 percent of the final value of the crop.^[31] This figure of 50 percent was not strictly the interest rate since it implied a portion of price speculation, but it gives an idea of the scarcity of credit.

After the liberal reforms the use of mortgage credit became more common. In 1860 there were 154 mortgages outstanding in the central region, guaranteeing an average loan of 1,292 pesos. Thirty-three years later the same region registered 508 mortgages outstanding guaranteeing an average loan of 2,966 pesos.^[32] Undoubtedly, the creation of a land registry and the existence of more reliable land titles had made mortgage lending more attractive. As Salvadoran businessmen became more sophisticated they began to approach European investors at the source. A good example of this is the Salvador Coffee Estates Company, Limited; a company registered in London in 1887 listing an address in the heart of the City of London. The company raised a capital of £50,000 to buy a coffee plantation in Santa Ana province. One of the thirty-four shareholders was José Francisco Medina, a pillar of the coffee establishment who seven years earlier had founded the Banco

International.^[33] Another instance of this practice was the Santa Ana Central Coffee Company registered in London in 1900. In that case the company was formed by the owners of Alvarez Hermanos, a Salvadoran company, as a device to mortgage their property in El Salvador, five plantations in the heart of the coffee country, and borrow money in London. (Incidentally, the properties were mortgaged to two of the English shareholders of Salvador Coffee Estates Company who were well acquainted with the value of the plantations.) ^[34] Money advances to coffee planters remained common throughout the century. When in 1898 the crop was threatened by General Regalado's coup d'etat, British merchants with operations in El Salvador became concerned. They asked the Foreign Office to safeguard their interests by sending a warship to the coast of El Salvador. It was, they observed, "the season when the coffee crop is being prepared for shipment in which British merchants are largely interested in consequence of their advances of money to the planters."^[35]

Financial operations were carried out in an environment with few constraints beyond the naked market forces. As the country lacked a monetary unit its money market was completely open. Before the creation of local banks and the introduction of paper money, the country had to rely on money minted abroad. Thus, the value of the peso, a remnant of the colonial period, was entirely determined by the market, and there was no local monetary authority. A limited number of coins had been minted during the federal period, but they were very rare.^[36] Chilean, Peruvian, Bolivian, Guatemalan, Honduran, French, English, and American silver coins were used for most transactions. Gold was scarce and was used to pay English and German balances.^[37] More primitive forms of currency were still in use. "Cut money" or moneda macuquina (roughly cut coins with a stamped seal, a remnant of the colonial period) and even cacao beans and eggs were used until the 1880s.^[38] The result of this virtually unregulated system was a considerable amount of confusion. Money was debased, abused, falsified, hoarded and, sometimes, used properly. (In 1874 the Juzgado de Hacienda reported that six out of eighteen criminal cases tried in that court were for money falsification.)^[39] Even cacao beans were falsified with clay. Eggs, however, were not easily falsifiable, but they entered into circulation as soon as they spoiled, thus giving a new twist to Gresham's Law.^[40] Small change was so scarce that the one-quarter real coins (cuartillos) were cut in half creating a tiny crescent-shaped coin that received the nickname of "finger nail."^[41]

The public sought protection against fraud. Only round money (as opposed to "cut" money) was accepted in important transactions.^[42] Yet, the decrees trying to regulate currency that were issued regularly

throughout the century are a constant reminder of the persistence of the problem. It was necessary to bring order to the system. Efforts to establish a mint and a national currency went parallel to the efforts to establish a bank. They faced similar problems: lack of knowledge and lack of capital. A decree was issued in 1869 (two years after the first contract to set up a bank) authorizing the executive to establish a mint. The executive did not follow through.^[43] It may have been difficult to find the expertise and the capital necessary for the operation, but it was always possible to legislate. In 1883 a monetary law was passed fixing standard weights for the silver and gold coins to be minted in the future, but the law had to be shelved for nine years until a mint was built and equipped. Things began moving faster in 1891 when the Syndicat Général de Monnaie, a French company, was given a concession to build a mint. The concession was transferred to a British company, the Central American Mint Limited, and a modern facility was inaugurated in August of 1892. The operation was under a British manager and was hailed by the British consul as "most creditable."^[44] Everything was ready to coin gold and silver according to the regulations established by the 1883 law and to solve the vexatious currency problems.

By 1892 the expansion of coffee exports, that is, the increased opening of the economy to world markets, had permitted the creation of modern financial institutions and the beginning of a national money market. The country was all set to pay for the consequences. At the same time that the mint began its operations the world price of silver was sharply falling. Gresham's Law came into play, and gold went out of circulation. Since by that time Europe and the United States had already adopted the gold standard, importers faced serious difficulties. Having no experience in these matters the government of General Ezeta did not quite know how to react. The legislature was called to an extraordinary session early in September of 1892. Before it met, a committee of citizens gave a report on the problem and recommended prohibiting the importation of foreign silver coins, reminting the coin in circulation, and accepting silver in circulation on a par with gold.^[45] When the legislature met a week later the executive proposed adopting the gold standard, but the committee that studied the proposal, after consulting with prominent bankers and coffee planters, modified it to the point of making it unrecognizable. The committee was dismissed and a new one was appointed to study the problem all over again. In the meantime the full legislature decreed the creation of a new monetary unit, the "Colón," to celebrate the four hundredth anniversary of the discovery of America. The new unit was a silver peso. It was clear that the president was facing a strong opposition to his gold-standard project.

At the end of September the gold standard was forced through. The

timing could not have been worse; silver prices were so low that people preferred to hoard their gold and use silver as currency. To encourage the use of gold the law said that 70 percent of customs taxes had to be paid in gold (with the exception of the coffee export taxes; political suicide had to be avoided).^[46] The plan did not work well at all. Merchants would rather stop imports than part with their gold; it was the beginning of a confrontation. A new decree issued in April of the next year insisted on the gold standard and raised the proportion of the customs tax to be paid in gold from 70 to 85 percent. In March the proportion was raised to 100 percent, but one week later, undoubtedly after strong political pressure, it went back to 85 percent. The importation of foreign silver coins was prohibited, but the planters refused to put in circulation the gold that they had received from the sale of coffee.

Imports plummeted together with government revenues. At a time when the trend of exports was very positive, imports went from 3.2 million pesos in 1891 to 1.8 million in 1893.^[47] The treasury had difficulties meeting the payroll and was angry at the coffee planters. Nobody wanted to use gold and, since import taxes were the main source of revenue, the government coffers were empty. In March of 1893 the Salvadoran legislature, based on the "alleged fact that the rich do not pay taxes in the same proportion than the poor," raised the duty on coffee to two dollars per quintal payable in silver.^[48] A new extraordinary session of the legislature was called in May. A decree was issued according to which import taxes had to be paid 100 percent in gold or (and this was the catch) its equivalent in silver. This was a concession, but at the depressed prices of silver it resulted in outrageously high taxes. It was an untenable situation, and import taxes were lowered, still payable in gold or its equivalent in silver. It was not enough; government coffers were empty. On June 27 a new tax was created: a property tax at a rate of two per thousand. There were consequences; a military uprising in the western provinces, the stronghold of the planters, had to be crushed July 3. Tension was mounting, but the government was prepared: before the crisis it had spent 2 million pesos on weaponry.^[49] The unavoidable coup d'etat was delayed for one full year. In January 1894, a new tax of 25 cents gold per quintal imported was decreed by the president. The proceeds from this last tax were to be applied to the building of the new railroad from La Unión to San Miguel. A tax on urban property and two new taxes on coffee were too much for the elite of coffee planters and, because "the people were tired of military rule and restive under the heavy taxes imposed for railroads and other internal improvements," the government of General Ezeta was overthrown in June 1894 by the legendary "forty-four."^[50] (To date they are remembered fondly; General Ezeta's memory, by comparison, is tainted by his efforts to impose

taxes on the planters.) Once the old general was gone, the new president, General Gutiérrez, reduced the tax on coffee exports from 2.25 dollars gold to less than 30 cents per quintal and repealed the property tax and the gold-standard legislation.^[51] The price of silver had already recovered, coffee exports doubled, imports went back to their 1892 level, and three new banks were chartered in 1895. It was a swift recovery; obviously productive capacity had not been damaged, and Salvadoran exports were producing a good profit. But the financial uncertainty and the political struggle had created great distress.

It was a story of sheer ineptitude on the part of the government. It is not clear whether the conflict between the planters and General Ezeta was the result of philosophical differences or of the chain of events.^[52] At any rate the crisis was misunderstood and mismanaged from beginning to end. No single actor in the whole affair could be accused of economic insight or of political subtlety. The succession of decrees and counter-decrees issued by the government and the adamant resistance of the planters created a situation of uncertainty under which hoarding was the only adequate response. Wide currency fluctuations were a new phenomenon brought about by the openness of the economy, and the country was not prepared to react to them. Nobody understood the problem, and there were no institutions to deal with it. (If the country had adopted the gold standard before the fall of silver prices there would have been no problem.) The main lesson was political in nature. Coffee planters had proven that they could use their economic power to bring a government to its knees. This strong political lesson had an economic implication: there was no easy way to carry out monetary reform without affecting powerful interests. After a faint effort in 1897 El Salvador had to wait until 1919 to carry out a monetary reform. Meanwhile the confusing monetary situation, with coins from all over Latin America, mixed with bank notes and government bonds, persisted.

This laissez-faire environment had permeated every corner of the financial system. Banks operated with minimum constraints and prospered as long as the coffee market was in good health. Their owners and main customers were coffee planters. In years when coffee prices were good, deposits increased and banks were eager to find borrowers. There was a boom mentality. "Money was plentiful, crisp new bills were accepted everywhere, large dividends were paid, everybody was hungry for bank stock."^[53] Even in 1893, in the midst of the gold-standard crisis, business was very good.^[54] After all, the gold-standard crisis had not affected the productive capacity of the country or the value of its exports; people were betting on the future. A greater problem was faced in 1897 when a drop in coffee prices brought the financial system to the brink of disaster. Coffee prices had a positive trend between 1886 and

1896 (see table 19, chap. 5), and production was also increasing. The shock came when prices in the international markets dropped sharply in 1897. Prices at Le Havre were cut in half from 71 to 34 francs per 50 kilograms. In New York the price went from 6.65 to 4.6 cents per pound. Inside the country the price dropped from 32 to 12 pesos per quintal.^[55] The sharp fall was followed by a slow recovery: the trough of the international price of coffee was reached in 1903, and it did not fully recover until the 1910s.

El Salvador's incipient financial institutions were ill prepared to face the new situation. Planters found themselves short of money and were not able to pay their loans. By law, banks were supposed to keep 40 percent of deposits in their vaults, but they did not respect their charter. When it was apparent that they had a cash crisis, there were runs on the banks. They could not sustain the pressure, and four out of six banks in operation went bankrupt. The government was unable to obtain foreign loans. Planters who in the past "could command any loans that they required" could not borrow money.^[56] It was a new experience. The institutions that had come to life thanks to the prosperity were put to the test. Foreigners were accused of keeping coffee prices low, while merchants were accused of sending silver out of the country.^[57] Currency went out of circulation, and even eggs were scarce as currency. Small transactions were settled with candles.^[58] There were rumors of a coup d'etat; some planters expected that with a new and more responsible government, coffee prices would go up.

The government was hesitant about the proper course of action. Its revenue had decreased, and it had no financial means to support its current operations or to bail out the ailing banks. General Gutiérrez knew very well the wrath of the planters; he had led the rebellion against General Ezeta after the gold-standard debacle. Early in January of 1898 he issued a decree accepting bank bills in payments to the state and exempting banks from payment of their obligations in silver. In one stroke he managed to worsen the government's financial problems and to further weaken public confidence. Later in the month the decree was suspended for eight months. In April the policy was reversed and a new decree forced the banks to redeem their notes in silver. The crisis was averted when banks imported currency to meet their obligations.^[59]

The financial crisis, external in its origins, was worsened by the extreme liberality that the banks had shown in their operations during the years of prosperity. According to the American consul, they had "left aside all usages and well-defined laws in banking so that they became mere speculative institutions, hunting borrowers right and left and giving them unlimited credit."^[60] Nonetheless, interest rates remained high

even in the most competitive years. Banks charged up to 24 percent per annum, which also suggests the possibility of inflation.^[61]

In the midst of the crisis the presidents of El Salvador, Honduras, and Nicaragua signed the pact of Amapala, which was supposed to be the first step to the reunion of Central America. The pact, rather than distracting those who were actively planning to topple the government, provided them with political ammunition. General Regalado, the main conspirator, argued that the financial burden of the union would fall upon El Salvador at a moment when the country could ill afford it. Regalado overthrew General Gutiérrez in November 1898. That was to be the last coup d'etat for thirty years. He came to power at a time of financial crisis, but the strength of the ruling class proved to be unshakable.

As it had been proven during the gold-standard crisis, the government was extremely vulnerable to external shocks since most of its revenue came from custom taxes. The boom mentality that had prevailed in the banking industry was also present in government operations. In 1886 the total value of exports had been 4,754,649 pesos, and it more than doubled to 9,745,000 in 1896. Government revenue went up from 3,635,251 pesos in 1885 to 10,174,000 pesos in 1886. The rise had been rapid, and the fall was painful. The decline in coffee prices was sudden, and the economy had a difficult time adjusting to the new realities. In 1898 government revenue was down to 4,609,630 pesos, less than half that of two years earlier. It was necessary to cut expenditure in every possible way. In January the legislature suspended payment of interest on the national debt.^[62] Jails were emptied, police services were reduced, even the music bands were dismissed. The government's printing office had to close because its employees had not been paid in five months.^[63] No sector of the population remained untouched: in the capital, university students insulted the government; in the countryside, Indian groups, still sore after the liberal reforms deprived them of their lands, rebelled and cut off the hands of judges.^[64] Many of the consequences of the crisis went unrecorded since General Regalado, as a money-saving measure, dismissed the employees of the statistics bureau (a fact that accounts for the lack of economic data for El Salvador for the years 1898–1900).^[65]

The nineteenth century was a period of almost absolute freedom in terms of fluctuations in exchange rates and monetary arrangements. The intervention of the government in the money market had been limited to issuing bonds to finance the budget and to occasional forced loans to finance military adventures. Not until the last two decades, with a larger and more open economy, did money-market fluctuations become a

serious problem, a problem that could topple governments. As the fate of Generals Ezeta and Gutiérrez prove, by the last decade of the century the coffee Republic was a full-fledged reality. Coffee planters remained in power until 1931 without having to face serious challenges from within the system. The economy recovered slowly and the government, unable to raise enough revenue, operated with deficits until the end of the century. Coffee exports remained high in terms of quantity, but the price was still depressed. Exports of indigo were waning, and its price was falling steadily. But, after all, the basic trends of the Salvadoran economy remained unchanged. The era of the coffee planters was here to stay, warts and all.

Communications and Transportation

The increase in exports that characterized the last quarter of the century demanded better communications and, at the same time, provided the funds for it. The economic geography of the country had changed, and roads, railroads, and ports reflected the new reality. During the indigo years the eastern part of the country had been the economic center. The fairs of San Miguel and San Vicente were a must for buyers and sellers, and the port of La Unión was the most active in the country. With the ascendance of coffee the western provinces gained in importance; La Unión was replaced by Acajutla and La Libertad. At the end of the century new roads were built to Santa Ana province and its environs, the heart of the coffee region.

Links with the outside world were most important. It was not only a matter of roads and ports; information had to travel fast to take advantage of changing markets. A young American by the name of Billings was hired to install the first telegraph linking San Salvador and the port of La Libertad. The line was inaugurated in 1870. Soon the service was extended to the port of Acajutla via Santa Ana, Ahuachapán, and Sonsonate. In a few months every port could use the telegraph to communicate with the capital. Four years after the inauguration of the first line, the service became international when a new line establishing communications between El Salvador and Guatemala was installed. By 1882 there were fifty-four stations in the Republic and "no town of the least pretension" lacked telegraphic service. That year cable communication with the rest of the world was established. No one missed the commercial significance of the improvement in communications. When the cable service began, the official newspaper commented that "nowadays our exporters of indigo and coffee can learn the prices of those products day

by day and as a consequence they can place the proper orders," thus avoiding commercial losses. A new dimension of the usefulness of these services was discovered when in 1885 El Salvador went to war with Guatemala and a few weeks later when General Menéndez overthrew President Zaldívar. Thanks to the new technology it was possible to mobilize troops more efficiently and to add a new twist to those ancient games. But there was more to come. General Menéndez, presumably pleased with modern advances, introduced telephone services in 1888.^[66]

Despite changes in government, roads improved rapidly. In 1880 there were 128 cart-roads with a length of 575 leagues. That same year a new road was being constructed between San Salvador and Santa Ana, the most prosperous city in the coffee region (by 1887 about one-third of the production of coffee was marketed in Santa Ana).^[67] Every stage in the network had to be improved and there was plenty of room for progress. As the country lacked local talent to carry out complex public works projects it was often necessary to hire foreign companies. American companies such as the "Pacific Bridge Company" obtained contracts to build iron bridges and piers.^[68] By the end of the century the country had over 2,000 miles of good roadway, and its roads were considered to be "far superior to those of most Latin American countries."^[69] It is not necessary to exaggerate the accomplishments of this period. The roads were not macadamized and had to be repaired after every rainy season. With the improvements, however, the cost of internal transportation and the time involved decreased.^[70]

The basic structure of the railroad network was developed during the last two decades of the century. It was relatively short and, following the pattern set by roads and telegraphs, developed first in the central and western parts of the country. The beginnings were shaky and reflected lack of experience in these matters. Early in 1872 the administration of Marshal González signed a contract with J. L. Bueron, an energetic "practical engineer" who had arrived in the country the previous year. Although Bueron's qualifications were less than ideal he was given exclusive concessions to build railways connecting the three ports of the Republic to the closest cities: Acajutla to Sonsonate and Santa Ana, La Libertad to San Salvador and Santa Tecla, La Unión to San Miguel.^[71] The next year Bueron went to France to raise capital for his company. He formed a society in Paris and found a French banker willing to serve as director. It should not have been too difficult to raise the money since the government guaranteed an interest of 8 percent over capital of 11,500,000 francs, but an earthquake destroyed San Salvador in March of 1873 and, at the same time, shook the confidence of potential investors.^[72] Bueron's only accomplishment was a line of about eight miles of railway between San Salvador and Santa Tecla that he finished

in 1876. A local merchant had to provide the money to finish the last few miles. The line was rather modest from the engineering point of view; it had no bridges or tunnels and the cars were driven by horses, but it was just the beginning. Never mind the technical aspects; the owners were pleased with it. It turned out to be the most profitable Salvadoran railway.^[73]

After ten years and only eight miles of railway the government revoked Bueron's contract in 1882. That year the government engaged in feverish activity to address the railroad problem, at least at the level of contract signing and paper shuffling. The Zaldívar administration signed contracts with Francisco Camacho to build the line between the port of Acajutla and Sonsonate and Santa Ana, with Maurice Duke to build the line between San Salvador and the port of La Libertad, and with General Butterfield (an associate of Cornelius Vanderbilt and of General Grant) to build an ambitious line from the port of La Unión to the border with Guatemala. The contracts amounted to a complete program of railroad construction connecting all the vital economic areas to the ports and among themselves; they went a step beyond the Bueron contract in terms of ambition if not in terms of realism. Neither Camacho nor Duke had any known experience in railroad building. Little is known about Camacho and nothing that would lead us to believe that he was a railroad expert. Duke, in turn, was a prosperous and versatile British merchant who had arrived in El Salvador as a young man in his twenties. He had experience as a merchant, as American consul, and years later as a banker.^[74] General Butterfield, by contrast, had better qualifications since at least he had the backing of powerful railroad interests in the United States. Not surprisingly the 1882 contracts accomplished little. Only the line between Acajutla and Sonsonate was finished, rather quickly in June of 1882 when the first steam engine arrived at Sonsonate.^[75] The rest of the project faced countless obstacles.

Efforts were made to raise capital locally at the same time that companies were formed in London to exploit the Camacho and Duke concessions, but the piles of paperwork on railroad construction advanced faster than the trains themselves.^[76] The section from Sonsonate to Armenia was inaugurated in 1884. Work on the Sonsonate—Santa Ana road was interrupted by the 1885 war with Guatemala. Two years later a new government renegotiated the contracts. As a result the country ended up owning three-fourths of the shares of the Acajutla—Sonsonate road and the whole of the part constructed on the Santa Ana road. Despite the nationalistic intentions of the new government, the Salvador Railway Construction Company, a British concern, retained the administration of the Acajutla road.^[77] After more contracts and more delays the Acajutla line was extended to La Ceiba (about 20 miles from

San Salvador) in 1891.^[78] Almost ten years had passed since the line had reached Sonsonate and only 22 miles had been added to the system. The railway connecting Santa Ana to the Acajutla line was progressing at a slower pace; by 1892 only one-third of the projected 39 miles had been completed.^[79] The modest 100-mile network through the heart of the coffee region was completed, at last, in April of 1900.

While the Acajutla line was moving slowly, the Duke and the Butterfield contracts led nowhere. No railway between La Libertad and San Salvador was ever built, while the construction of the La Unión—San Miguel line had to wait until the next century to be completed. Given the problems in the construction of the Acajutla network it would have been optimistic to expect a better performance in the La Unión—San Miguel line. In fact, there were better uses for optimism. Eastern El Salvador had been losing economic ground to the coffee-producing provinces of the west, and the slow pace of the La Unión railway only confirmed this fact. After the contract signed with J. Bueron in 1872 the government signed contracts with nine different companies (including Butterfield's) before the thirty-mile line was finished in 1911.^[80]

During the first stage of railroad development the government tried a number of financial schemes, always insisting on a certain measure of local control and never relying entirely on foreign capital. A turning point took place in 1894 when the government gave a concession to an English firm, the Central American Public Works Company, for the completion of the railroad between Santa Ana and Santa Tecla, the last stage of the Acajutla network. The government guaranteed the CAPW an annual profit of 6 percent, and agreed to the following:

During the life of the contract (50 or 99 years) no negotiations for the construction or operation of any railroad, by anyone in Europe, must be entertained, nor can any railroad be established between Acajutla and the terminus of the Acajutla road, or from Santa Ana, except it be the inter-continental line proposed by the United States.^[81]

The British company, in turn, contracted to pay all the foreign debt of El Salvador. The years of failures and the mounting debt had taken their toll. The CAPW agreement was a substantially different arrangement from any made before. In the past, railroads had been financed stage by stage, internally or through bonds sold in international markets, but the country had not given away the network to foreigners. The railroad from Ateos to La Ceiba, for example, was built with funds obtained from a loan issued in London in 1889, but its operation was in Salvadoran hands.^[82] The portion of the Santa Ana railroad located between Ateos and Sitio del Niño, inaugurated in 1893, was built by an

American contractor and financed by a foreign loan in 1892 but, again, it was not given away. Even in 1894 there was a last effort to raise capital internally. In January of that year the government raised the import tax to finance the La Unión—San Miguel line, and although the scheme failed it still represented an effort to finance public works internally.^[83]

It was the last such effort. The contract with the Central American Public Works Company represented a permanent change in the form of financing and operating the system. Being in the midst of the financial crisis created by the adoption of the gold-standard the government was facing a serious difficulty in paying its obligations abroad. The change, however, had long-lasting effects. Crisis or no crisis, the difficulty of the Salvadoran economy to generate the relatively large amounts of capital and expertise needed for railroad construction and operation was becoming apparent. Although General Gutiérrez renegotiated the contract with more favorable terms, it was within the same general principles.^[84] After a revision of the contract in 1899 the Salvador Railways Company, successor of the CAPW, was left operating the Acajutla network.^[85] In 1908 the government signed a contract with René Keilhauer to finish the project from La Unión to the border with Guatemala. After a series of transactions the concession ended up in the hands of the International Railways of Central America, a subsidiary of the United Fruit Company, which together with the Salvador Railways Company controlled railroad traffic until the second half of the twentieth century.^[86] It is fair to say that not much was given away; Salvadoran railroads were only marginally profitable.^[87] Unfortunately, there are not enough data to calculate the social savings generated by the railroads, but, given the short distances involved, it is doubtful that they were dramatic.

After the railroads took the coffee to the ports, the next step in the transportation network was its shipment to Europe and the United States. In terms of costs this was by far the most important side in the transportation equation, but in this regard the country was unable to affect its destiny in any meaningful way and had to accept whatever services foreign companies were willing to offer. Being very small and having little to export El Salvador was not attractive to shipping companies. As mentioned in chapter 3, the Panama Railroad Company and its subsidiary, the Pacific Mail Steamship Company, had a virtual monopoly of the shortest shipping route to Europe across the Isthmus of Panama and took full advantage of the situation, keeping the fares high and the service poor. Moreover, the Pacific Mail demanded an annual subsidy to carry mail and to provide a regular service.

Efforts to change this situation were fruitless. One way to break the monopoly was to create competition. In 1870 a private company formed

by the main merchants of Central America bought the Prince Albert , a steamer operated by the Australian Royal Mail Service, with the idea of establishing a line between the ports of Central America, Mexico, and San Francisco, a route that was not well served by Pacific Mail steamers. The Central American governments were delighted with the idea and gave all kinds of concessions to the new company. It was a good concept, but Central American capitalists were not ready for such a venture and the company folded after the first trip, reportedly due to lack of capital.^[88] A similar scheme was tried seventeen years later when a new line between San Francisco and Panama was established. The contract with Pacific Mail was about to expire and the Marqués de Campos, a Spanish businessman, approached the government with the idea of a new shipping line that was to be called Hispano—Centroamericana. He was to receive the Pacific Mail subsidy and to replace the American line. Five second-hand steamers were to operate along the route. Optimism was high, and the arrival of the Pioneer was hailed as "the commencement of a brilliant era for the owners and merchants." Feeling the pinch the Pacific Mail lowered its rates until the new company went out of business later in the year.^[89] A last effort in this direction was made in 1894 when a company formed by American and Salvadoran investors was authorized to run a line of steamers from the new port of El Triunfo. The new company planned to operate along the Pacific coast, and its steamers were to visit ports of Colombia, Central America, Mexico, and California. There is no indication that this company ever got its operation off the ground.^[90]

Creating new companies was impossible, and attracting established ones was not easy. The latter approach was tried a number of times with marginal success. In 1884 a contract was signed with a German steamship company according to which the company, Kosmos, was to put in service eight steamers. One was to transport goods to and from Hamburg. Of the remaining seven, four were to travel to South American ports and three to Valparaíso to establish connection with steamers traveling to Europe. The contract had a provision to the effect that Kosmos could not charge higher rates than Pacific Mail, and the Salvadoran government, in turn, offered a subsidy of five hundred pesos per trip. The contract was renewed with some modifications in 1886 and 1891.^[91] Kosmos, however, could not offer the same kind of service as Pacific Mail since its route went around Cape Horn. Nonetheless, it was the kind of thing that made the Pacific Mail react, and it did so by placing more tonnage on its line. The threat of competition was averted. Although a few German and Spanish ships visited Salvadoran ports regularly, the Pacific Mail remained pretty much in control of the market.^[92] Replays of the same story took place in 1891 and in 1892. In 1891 the

government signed a contract with another German company, the Hamburg-Pacific, which included a subsidy of four hundred pesos for every steamship that visited a Salvadoran port, and in 1892 the government tried to entice the "South American Steamship Company."^[93] Neither company was able to make a substantial dent in the business of the Pacific Mail because they had to operate along the Cape Horn route.

There was a third approach to disciplining the Pacific Mail: to withdraw the subsidy and the preferential duty of 2 percent in favor of goods passing by the Isthmus of Panama. This approach was tried in 1874 when one of the contracts of the Pacific Mail expired. The reasoning was that since the steamship company was doing more than reasonable business in El Salvador it had an incentive to continue its service even without any kind of protection. Things were more complicated, as the government found out in due time. By 1874 the Pacific Mail was a huge company operating in the main ports of the Pacific Ocean (the company's steamers went as far away as China), and without a contract it felt free to move its steamers around to operate in whatever route was most profitable at the moment. As a result its service to El Salvador became highly irregular to the point that the government had to reconsider its decision. A new contract was signed in November of 1875 offering a subsidy of 12,600 dollars. In February of 1877 the subsidy was raised to 25,000 dollars, and the next year it was raised to 35,000 dollars.^[94] The sad truth was that the service of the Pacific Mail was far more important to El Salvador than El Salvador's business was to the Pacific Mail.

Despite the many efforts to reform it, the shipping network established in the 1850s around the Panama Railroad remained unchanged. Pacific Mail steamers kept the greatest share of the market despite constant complaints from the exporters of coffee. Whatever permanent improvements in service or lowering of fares took place during this period were due to market considerations as seen by the Pacific Mail and not to responses to actions of the Salvadoran government. Nonetheless, there were quantitative changes in the number of ships that visited Salvadoran ports. In 1856 only 63 ships visited Salvadoran ports; by 1882 the number had increased to 110, and by 1892 to 206. These figures tell only part of the story since the size of steamers and the average tonnage increased over time.^[95]

The development of a transportation and communications network faced the same difficulties as any other complex economic activity: the leaders of the country understood the need for such a network, but they were barely prepared to deal with it. Moreover, the economy was so small and the profits to be made so limited that even foreign entrepreneurs showed little interest, and when they did the country had little

power to negotiate advantageous contracts. Every contract, every step, was a mix of improvisation, determination, and powerlessness. However, by the end of the century the primitive roads that had made life difficult for travelers who came to the country in the 1850s were a thing of the past. The railroad line was only 99 kilometers long, but it was strategically located. The telegraph network had over 2,000 miles of wire and 180 offices. There were 500 miles of telephone lines and a cable service that provided communications with most foreign countries. Ports had been improved and freight rates decreased. The country had acquired the first taste of modernity. Export-related activities enjoyed privileged access to modest versions of new technologies. But modernity was reserved for the capital city and the coffee-growing regions. The increased differentiation between town and country and between the modern and traditional sectors which has prevailed during the twentieth century was created during this period.

Revenues and Taxes

Although the newly found prosperity made it possible to carry out improvements in the transportation and communications system, government revenue did not come directly from taxes on coffee or on the planters' incomes. Until the end of the century two old taxes, import duties and the monopolies of gunpowder and brandy, accounted for almost 70 percent of tax revenues (see table 29). It was harder to modernize the tax structure as compared to other aspects of the economy. But even if the structure remained basically the same, the tax base increased. The growth in imports and the overall economic activity were closely tied to the prosperity of coffee exports.

Some of the main features of the tax system were remnants of the preindependence period. The liquor monopoly, for example, had been a source of revenue since colonial times, but its importance had decreased. In the 1850s revenues from this source were higher than custom duties. By 1887 custom duties generated twice as much revenue as the liquor monopoly.^[96] There were advantages to this monopoly since it did not impose an administrative burden on the state; it was farmed out. The country was divided into nineteen distilling districts, and the concession for distilling in each district was auctioned every four years. The government bought the liquor from the distiller and then gave concessions to sell it to the public. A heavy tax on imported liquor protected this monopoly.^[97] It was a steady source of revenue since the demand for liquor was very inelastic. Liquor concession auctions were not always carried out by the book since, as they were highly profitable, the possibility of bribing public officials to secure a specific outcome was always a temptation. Presidents enriched their friends and political allies by giving them concessions in the liquor monopoly. Import taxes also had a venerable tradition going back to colonial times and became more important with the growth in exports. This was only natural since custom taxes were easy to administer by governments with a very limited degree of organization. They were relatively high and increased over time (see table 30). In the last two decades of the century they fluctuated between 60.6 and 171.5 percent of the aforos value of imports. It was much easier to raise taxes on imports than on exports. Coffee growers, whose power was increasing year by year, strenuously opposed duties on coffee. As imported goods consisted mainly of textiles and tools, the average consumer was badly hurt by high import

taxes. Overall the tax sytem was highly regressive. Obeservers were impressed to see that

... land proprietors and land and houses and lots are untaxed, while the "natives," as the masses of these Indians and Aztecs and mestizos are denominated, must pay a duty of 120 percent, besides freight charges, on their cotton shirts and "machetes." If trade with San Francisco, even burdened with these obstructions, were conducted under terms of a liberal reciprocity treaty, there would be discovered here an invaluable market especially for cotton goods, hardware and agricultural implements and machinery.^[98]

Timid attempts to lower import duties were rapidly repealed. No revenue alternatives were found. In 1883 the government, in an effort to stimulate foreign trade, lowered the import duty by 20 percent.^[99] In 1885, after a fall in revenue, the duties were raised to 50 percent ad valorem: 25 percent payable in cash, 15 percent in custom house certificates, and 10 percent in national bank notes. In March 1885 import duties were increased 20 percent, payable in gold, and in June of the same year a small export duty on coffee that was meant to fill the void left by the cut in import taxes was abolished.^[100] These changes are another striking example of the balance of power that predominated during the period.

There was no clear tax policy. Governments tried to raise revenue to finance their activities in whatever way was politically viable. In general, this strategy did not include hurting coffee planters. Circumstances more than policy seemed to impose new taxes. When the National Palace was burned to the ground in 1889 the government imposed a tax on coffee exports of one peso per quintal to finance the new building.^[101] Despite opposition, this tax became part of the revenue, although the idea of a new palace was left for a better time. However, this source of revenue was endangered when it became mixed with the gold-standard debacle of 1892–1894. President Ezeta, upset by the refusal of merchants to accept the gold standard and facing a serious decrease in government revenues, tried to force the planters to pay higher taxes. After Ezeta was duly removed from power (see earlier) the tax structure was restored to its previous balance favoring the coffee planters. But even General Gutiérrez had to realize that the greatest source of wealth in the country could not go untaxed and, six months after he had almost eliminated the export tax on coffee, he restored it to its former level of one peso per quintal. Finally, after much struggle, the tax on coffee remained permanent. It amounted to less than 5 percent of the price of coffee FOB; a trifle when compared to import taxes of more than 100 percent, but enough to topple governments.

The Limits of Protectionism

This peculiar tax structure justifies a digression on the lack of industrialization in El Salvador. High import taxes can, under certain circumstances, stimulate domestic production. That did not happen in El Salvador. The only industrial activity of any importance was the textile industry. It was mainly in the hands of artisans using handlooms. In 1893 there were around five hundred looms that were used mainly to produce rebozos (a kind of shawl) for export, but they represented a negligible percentage of exports.^[102] Moreover, the cotton thread used to make them had to be imported, thus anticipating the pattern of industrialization in which the country provided the labor force for processing foreign raw materials. Despite the high import duties it was cheaper to import thread than to produce it domestically. Moreover, when an effort was made to protect the rebozo industry more effectively, the limits of the system became evident. In 1893 taxes on imported rebozos (a higher-quality product for well-to-do ladies) were increased to 40 pesos per kilo explicitly to protect the local industry. The results of the new policy became apparent at once. Legal importation of rebozos through the ports stopped immediately, only to be replaced by contraband through the borders. A source of revenue was drained at the same time that the industry was left even less protected than before.^[103]

A threshold on import taxes existed beyond which contraband became an option. Import duties from goods coming from neighboring countries were negligible because they were impossible to administer. Ports were good collecting points because transportation costs by land were so high that, within certain limits, it was a better option for the merchant to pay taxes than to engage in contraband. Custom duties were more like monopoly fees to use the ports. The problem was that when taxes were high enough to protect an industry they were too high to be effective; they begat contraband. This was a direct result of the weak organization of the state.

In fact, cotton production for the rebozo industry would have been possible in El Salvador, but at too high a cost. It had existed but virtually disappeared after the boom of the 1860s. After the end of the American Civil War cotton prices fell and Salvadoran producers could not compete in the international market anymore. Cotton production fell "burying in its ruins a great many capitals, large and small." Even during the best days of the cotton boom producers had to face pests that were beyond their control. Not until the twentieth century, with the availability of insecticides and with a completely different international market, was it possible to produce cotton on a large scale and at good prices. By the 1890s even lamp wicks and carded cotton for surgical purposes had to be imported.^[104]

The leather industry was even less developed but, thanks to protectionism, it did cover domestic needs at a time when most of the population did not wear shoes. A small tanning industry had developed; in 1885 the total number of tanneries was over twenty. High import duties made local leather less expensive than the imported kind. Whereas the price of German leather was twenty-five cents per pound, the price of the Salvadoran product was eighteen cents. Yet, the quality was not the same since local hides were tanned using very crude methods. The barks of locust, mangle, and oak were used for tanning, and the average tannery produced about twenty hides a month. Bigger establishments were technically superior and were run by foreigners; a German tannery turned out two hundred good quality hides every month.^[105] By the end of the century soap and candle manufacturing had developed; another instance in which government protection seems to have had some effect. All the companies engaged in this activity enjoyed tax exemptions to import machinery and inputs.^[106] And although they produced exclusively for local consumption, one of them, "La Favorita," was the beginning of Herbert De Sola's industrial complex, which now produces an impressive array of products, from margarine to toothpaste, and exports to the rest of Central America. Other industries had very little importance. There was some production of hats, baskets, rope, cigars, and other minor handicrafts.^[107] Protectionism, then, was successful only when import taxes did not go beyond the threshold where contraband became attractive, and when the simplest technology was involved.

Mining fared better. It had a slow start but by the turn of the century was an extremely profitable venture—for the British. Since the discovery of silver in the northeast in 1781 mining in that region had advanced slowly. During the period of the federation Marshall Bennett, one of the top merchants of Belize, tried to set up a modern operation in the "Tabanco" mine by bringing English technicians and steam engines to pump water.^[108] Even with access to British capital the venture faced the typical obstacles: lack of qualified labor and management, bad roads, political instability. In 1830 Bennett tried to work "Tabanco" in earnest and brought English miners; the results were discouraging, however:

[T]he machinery introduced was so heavy that, because of the bad roads, it was impossible to bring it to the place where the mineral was located. This circumstance and others due to the political situation of the country made the project fall through.^[109]

Even without the benefit of modern machinery the mines of the northeast were exploited profitably throughout the century. A French

company, the Société Française des Mines de San Salvador (which apparently was owned by the Société du Crédit Mobilier) began operating "Tabanco" and "Encuentros" in 1855. In 1876 and 1877 the two mines together produced 2,168 kilos of silver.^[110] Smaller companies operated in the same region. In 1874 Señor Miguel Macay discovered the "Divisadero" mine and for a while exploited it by himself. By 1882 the annual extraction of silver ores had a value of 700,000 dollars, about 13 percent of the value of total exports. Substantial British investment in mining began in 1888 with the organization of the Divisadero Gold and Silver Mining Company and, the following year, Butters Salvador Mines, Ltd. The latter company was extraordinarily profitable: from 1903 to 1913 it paid annual dividends of 52 percent on average.^[111]

Iron mining remained marginal. Ever since the late colonial period small iron mines had operated in Metapán, Santa Ana. Small foundries operated thoughout the century but never played an important role in the economy. By the 1880s they had very little machinery, and the operations faced great difficulties due to lack of coal. Oak charcoal was used as a substitute source of heat, one of the reasons for the poor quality of the final product. The iron was used mainly to produce machetes.^[112] Local needs were never satisfied by these foundries; machetes and agricultural tools were imported in increasing amounts at the end of the century.

The sorry state of Salvadoran industry, despite heavy import duties and the even stronger protection given by high transportation costs, shows the limitations of the Salvadoran economy. Industry was very slow to develop due to the lack of technical knowledge, resources (lack of coal, for example), capital, raw materials (e.g., cotton for the textile industry), and other inputs (e.g., chemical products to tan leather). The simplistic notion that a certain isolation from world markets could have helped to develop a domestic industry does not seem to have much relevance in the case of El Salvador. There were too many obstacles to overcome and, perhaps a more important reason, from the point of view of the local elite coffee was still a better alternative. In their experience, despite all the uncertainties, fortunes could be made (and were made) in the coffee business. Industry was a more uncertain and more difficult investment option.

Elite Formation

As new economic activities became necessary, the burden of ignorance was much greater. Whenever a new technology was brought or a new institution was created, it was necessary to use foreign expertise in order

to solve the practical problems involved. This only highlights one of the leitmotivs of the economic hostory of El Salvador: the great scarcity of human capital and the great rewards for those who had it. Salvadorans had little access to education and a limited choice of activities to engage in. The educational system had started at the very bottom, and it was not easy to lift it from there. Although the university was founded in 1841 it remained small and offered courses in very few fields. The first subjects taught were law and medicine; potential engineers or people interested in mathematics had nowhere to go. Agriculture was not considered a subject proper for a university. Efforts to take a scientific approach to agriculture were unsteady. An agricultural school destroyed by the 1873 earthquake was not rebuilt. In 1893 a model farm was established to provide examples of modern agricultural techniques. Civil engineering did not fare much better. An effort was made in 1864 to professionalize land surveyors, but the project fell victim of political instability. In 1879, just one year before passing the legislation that eliminated the ejidos , the government realized that there were not enough qualified people to survey the land. It was stimulus enough for the creation of the Facultad de Ingeniería Civil, but it was difficult to raise the standards of the new facultad since teachers were ill prepared. Science had to wait many years before it became a serious matter. As late as 1898 the Commercial Directory listed only 11 engineers in El Salvador (5 of whom were foreigners). Lawyers, by contrast, were relatively abundant (the law school provided the nearest thing to what we would now call a liberal arts education); there were 189 lawyers and 144 physicians, the other profession of choice.^[113] Such was the total of the professional class in a country with more than 700,000 inhabitants.

Given the limited access to education it is natural that the children of the rich were more likely to obtain a university degree than, say, an Indian child from Izalco. Children of the planters, however, seldom went very far in their education. It was not rewarding to spend long years abroad studying complicated subjects when they could learn the intricacies of coffee cultivation at home and be amply remunerated for their endeavors. When the infrastructure became complicated and the time came to create banks or to build railroads, it was always possible to import a foreign expert or semi-expert. Railroad construction was associated with names like Bueron, Scherzer, Hinds, Glower, or Keilhauer. The agents of the shipping companies had names like Mathe, Foote, or Courtade. Banks were administered by British and American citizens.

El Salvador experienced a selective immigration. There were no large national groups moving en masse to El Salvador; immigrants were individuals (often male and single) with a specific expertise. They found out

in a short time that their talents could be profitable and that they could receive rapid social recognition. The Salvadoran elite, too ignorant and too small to do all the work necessary in a growing economy, was ready to adopt the newcomers. Immigrants provided a good avenue to expand a suffocatingly small ruling class. Second-generation immigrants could expect to marry into the elite. Eligible bachelors of good families were few and difficult to catch, and it was more acceptable to marry a successful immigrant with white blood than a local parvenu. Once rich and well married they adopted the cultural traits of their in-laws. Not having contact with others of similar national background to keep the customs of the old country alive, immigrants did not create cultural enclaves and were rapidly absorbed. They provided the blue eyes of their children and received the prejudices of their new relatives in return.^[114]

A study of the Salvadoran bourgeoisie written in 1977 presents a list of sixty-three of the richest families in the country: people involved in agriculture, industry, and banking. This list, although incomplete, is a good sample of the road to economic success.^[115] It can be used to show the link between the changes that took place at the end of the nineteenth century and the formation of an elite that had enormous power until 1979. Only twenty-one (33.3 percent) of the families can be traced back to "old" nineteenth-century families; thirty-eight (60 percent) are immigrant families, and four (6.3 percent) made their fortunes after the 1950s.^[116] Among the "old" families more than half started their fortune before the advent of coffee, and all of them prospered thanks to agriculture, with or without the help of having a relative in the presidency.^[117] Not surprisingly, some of the old families sent their children to study abroad and by doing so enhanced their possibilities of success. Immigrants and old families were direct beneficiaries of the economic environment of the turn of the century. The growth in exports created new opportunities, and the few who had the education or ability to take advantage of them were amply rewarded: they were given a country to rule.

In general, immigrants started in commerce and small industries and then bought land. Nationals followed the opposite route. A rapid look at a list of landowners sheds light on this issue. Colindres's study includes a list of people who in 1972 owned more than 100 hectares of land in seven western provinces (about half of the territory of the country in the best part of the coffee region).^[118] According to his information there were 926 properties that satisfied that size criterion, 105 (11 percent) of which belonged to the descendants of immigrants. If the criterion is narrowed to properties of more than 1,000 hectares, the share of the descendants of immigrants rises to 21 percent.^[119] These figures, together with the information on the "richest" families, show a clear pattern. The

more complex or the larger the size of a business activity the more likely it is that a descendant of an immigrant will be involved.

Successful immigrants went to El Salvador for very diverse reasons, but they had one thing in common: they knew a skill that Salvadorans did not. It could be anything, languages, car mechanics, or beer making. The first known successful immigrant was Robert Parker, an English merchant who had fought with Cochrane in South America; by 1826 he was already considered "one of the most influential persons, who was consulted by the government of that state [of San Salvador] on all important occasions."^[120] He knew languages, the art of war, and the art of buying and selling under duress, a winning combination during the federal period. His decendants are still prominent and linked to "old" families. Another successful early immigrant was Maurice Duke, a British citizen born in Jamaica. He is a good example of how someone with an education had an edge. His knowledge of English and of international business practices allowed him to engage in the most profitable ventures of the time. He arrived at San Salvador in 1864 as a young man of twenty-four and, after only eight years, he was considered to be a person "of character and position" and was appointed American consul. Later in life he owned stock in the piers of La Libertad and Acajutla, was awarded a contract to build a railroad, and was consulted by presidents. His son Rodolfo was one of the founders of the first Banco Agrícola Comercial, and his daughter married into the Guirola family. His descendants are included in Colindres's list of the "richest."

Even the simple skills of a specialized worker could be enough to start a career. An Italian chauffeur brought to the country by a family of coffee planters used his skills to start a car dealership. It was even easier if the skills brought by the immigrant were specifically suited for Salvadoran conditions. When the Alvarez family came from Colombia it was already familiar with the coffee business; before the end of the century the Alvarezes were founding banks.^[121] Don Herbert De Sola can be included in this category. He was a Sefardic Jew born in Curaçao to a business family. His first company was based in Panama and had opened a branch in El Salvador in 1885. After the failure of Fernand de Lesseps's canal in Panama he decided to move his business elsewhere. He made a long trip around the world to find a good place for business (he went as far as Transvaal) and decided on El Salvador. By the time he arrived there and opened his first store in 1896 he was thirty-one and already had some capital, experience, and excellent business connections in Panama and in Europe. It was the right combination of skills and assets; before he died his companies employed 3,200 workers.^[122]

People of Arab descent succeeded with a slightly different set of skills. They were not particularly well educated when they arrived in El

Salvador after the breakdown of the Ottoman empire. However, they came from a long tradition of merchants and had a more aggressive business culture than the natives. As a result of their hard work and remarkable skill their success was swift. Four families of Arab descent are among the thirty-one "richest" immigrant families on our list. The right time to start a big fortune, it seems, were the last twenty years of the nineteenth century and the first twenty years of the twentieth. Virtually all of the immigrants on Colindres's list and all but four of the nonimmigrants started their business activities during or before that golden period. After that the door was virtually closed. The timing of economic success was crucial. For those who arrived later it was much harder. Although Colindres's sample included four "newcomers," it is highly questionable whether they were as wealthy or as influential as the other fifty-nine. It seems a clear conclusion that the Salvadoran elite was consolidated between 1880 and 1920 as a result of the expansion of exports. That was the gestation period of the mythical "fourteen families."^[123] After that period most applications to be a member of that exclusive club were blackballed.

The Standard of Living of the Elite

The coffee elite developed a lifestyle that was in sharp contrast with the simple life of the rural worker described above but that was modest by the standards of the rich in other parts of Latin America. There were few amenities beyond the endless visits and the religious festivities. The capital was less than monumental; in 1887 it had only twenty-one two-story buildings and one theater. Electricity was not introduced until 1888. The National Palace was one of the two "establishments deserving the name of monument" (the other being the military school). It was a wooden building that occupied a full block and housed every single governmental office, from the president's to the telegraph.^[124] Unfortunately it was lost in a fire in 1889, leaving the city with one less monument and historians without archival material. Up until 1885, when a spacious market was opened to the public, groceries were sold at the central plaza, in exactly the same way as during the sixteenth century. In contrast, there were plenty of small shops (64 bars, 58 stores selling imported merchandise, 55 shoe stores, 14 millinery stores, 20 dressmakers, 18 bakeries, 3 bookstores, 5 flower shops, 2 public baths, etc.).^[125] Again, the accomplishments, however modest, seem remarkable when considering the point of departure. Shortly before the breakup of the federation San Salvador was a city of about 15,000, "composed of a few short streets branching off from a 'plaza' and of numerous Indian huts scattered over a large extent of broken ground."^[126]

In 1891, Señor Aguilar, a rich planter, ordered an inventory of his goods. A look at this document gives an idea of his way of life.^[127] He owned two houses in San Salvador, in the center of the city. One of the houses was next to the presidential palace. The living room of the house occupied by the family (one of only ten two-story private houses in the whole city) was furnished with a German piano, velvet sofas and chairs, and damask curtains, although there is no mention of silver or crystal. The planter's wife had jewelry worth more than half the value of one of the houses. Following the Salvadoran tradition, the coffee planter also owned a hardware store valued at 13,184 pesos. He also was a shareholder of the Banco Internacional and owned government bonds.

His most valuable property was a coffee plantation with 150,000 coffee trees valued at 60,000 pesos. The finca had two houses, watertanks, coffee nursery beds, and twenty-five manzanas of woods. There were twelve oxcarts to transport coffee. The main plantation was complemented by a smaller one with 80,000 coffee trees and by a beneficio (a plant to process the beans) that was purchased in 1886. The beneficio was as valuable as the finca. It had a steam engine with its boiler, a pump, iron lifts, and other imported machinery. The machinery was housed in a building with a tile roof.

The main plantation had been bought with a loan from the Banco Internacional, and the planter still owed 10,000 pesos to the bank. He also had financial dealings with a firm in Birmingham and with two German firms, one in Rainschail and one in Hamburg. Aguilar's total fortune was valued at 184,282.90 pesos, and his debts amounted to 20,000 pesos. His fortune was relatively large for the period, equal to about 3 percent of the total revenue of the government. This fortune was not the largest at the time, but it had peculiarities that made it an example of the evolution of the Salvadoran elite. The Aguilars were one of the leading families of the province during colonial times and played a key role in the independence movement. They were prominent in the indigo business, and when Eugenio Aguilar was president he signed the first piece of legislation that gave incentives to coffee production. Later on they branched into banking and, as of 1990, a large part of the fortune was still in the form of coffee plantations. It is a typical case of adaptation to changes in the economy through many generations.

This glimpse into the standard of living of a member of the elite illustrates the contrasts of Salvadoran society at the end of the century. The rich, although modest by European standards, had developed a way of life totally removed from that of the campesinos . The differences could be seen in all aspects of life: access to political power, to education, and so forth. That meant that those in power had a different perception of reality than the majority of the people, and their power was great enough not to be accountable to them.

Conclusion

By the end of the nineteenth century El Salvador had achieved both moderate growth and great inequality. Whatever growth had taken place was closely asociated with the formation of a very small and powerful elite that was able to use the apparatus of the state for its own purposes. This book has identified several elements that led to this result:

1. The point of departure was very low. An understanding of this is essential to put the problem at hand in proper perspective. A mere description of the availability of factors of production at the end of the colonial period was enough to show that El Salvador began its existence with very little: a small and uneducated population, a tiny elite, and scarcely any capital. Most resources were devoted to traditional agriculture and the production of the most basic crafts. Indigo and food crops were cultivated following the same techniques that had been used for at least two hundred years. The distribution of goods faced formidable obstacles. A very poor communications system hampered trade; a rough geography and, being on the Pacific coast, a poor location, forced the economy into isolation. The Salvadoran economy was, by and large, devoted to subsistence activities and unprepared to do much else.

2. Economic growth was delayed for many years after independence. The tiny elite, unprepared to organize a complex economy, was also unprepared to organize a stable political system. As a result, energies were wasted in warfare, investment came to a halt, existing capital was destroyed, and credit and educational institutions did not develop.

Growth, even very slow growth, has a cumulative effect; so does destruction. A superficial comparison with Costa Rica, which managed to remain insulated from the wars of the first half of the century, shows how the latter country was developing credit practices and institutions while in El Salvador forced loans were used to finance destructive wars. Not surprisingly, Costa Rica was able to begin learning how to cultivate and market a new crop, coffee, and was able to finance it, much earlier than El Salvador.

3. The stimuli to engage in export agriculture on a large scale came from market signals, changes in transportation costs and product prices, and not from government policies. After the Gold Rush and the rapid increase in trade along the Pacific coast, transportation costs were lowered and export agriculture became more profitable than ever. Government policies only reinforced market signals.

4. The introduction of coffee meant a change from traditional to modern agriculture which, in turn, created greater inequality. To take advantage of this change one needed a measure of education in order to be able to learn new technologies and new forms of financing and marketing. In a country with a new and small educational system, there were very few who were equipped to take advantage of the new opportunities. Many in the indigo elite managed to switch to coffee production, but the link between the old elite and the new was access to education and not to land. Indian communities had only the latter and ended up losing their ejidos and communal lands.

5. The institutions of the state were designed to favor coffee planters. There were so few educated individuals that coffee planters and politicians were bound to come from the same pool of people. The very same individuals who organized the institutions of the new state and decided their role in the economy also organized coffee production and decided its marketing. Despite the internal divisions that existed within the elite, there was a consensus on the need to direct the activity of the state to facilitate export agriculture. The tax system, the road network, legislation, the banking system—in fact, much of the legislative activity and virtually all public works—were designed directly or indirectly to promote the coffee industry.

6. Outside influences can be traced to market signals and not to direct investment or, for that matter, to any decision of foreign governments or individuals directed to take advantage of the economy of El Salvador. While other countries of Latin America received a substantial influx of immigrant labor and capital (and had to pay dearly for foreign investment), El Salvador, lacking in anything so appealing as Argentina's pampas, Mexico's mines, or Peru's guano, was largely ignored by outsiders. The successes and failures of the nineteenth century were

achieved locally. At the same time that the country was deprived of foreign investment it had the freedom to make its own decisions and its own mistakes.

7. The privatization of land, the so-called liberal reforms that ended up stripping Indian communities of their lands, were not the origin of Salvadoran inequalities or the beginning of the liberal state. The liberal reforms epitomize and dramatize a process that had began much earlier when the introduction of new agricultural techniques and the development of the state had placed a tiny educated minority in a position of great advantage. When the reform legislation was written, market forces were already rapidly eroding traditional forms of land ownership, and inequality was well entrenched.

8. The elite that consolidated its power at the end of the nineteenth century and at the beginning of the twentieth remained the arbiter of Salvadoran politics and society at least until the onset of the civil war of the 1980s.

The history of the economy of nineteenth-century El Salvador is, by and large, the history of the free market playing in a small and unprepared country. With market forces operating openly and freely, the role of the state was to take clues from them, to facilitate their action, and to reinforce them. Even without government help the result would have been the same: a rapid growth of coffee production and greater inequality. After the introduction of new cultivation, financing, and marketing techniques, market forces rewarded human capital more than ever before and worsened the distribution of income and wealth. Without any other action, inequality was bound to increase. Other actions were taken, however; the apparatus of the state was set in motion to reinforce the trend. The first half of the century had not been a golden age; inequality was not an invention of imaginative coffee planters. But greater prosperity widened the gap and sharpened the division lines.

On the one hand, given the circumstances and the long litany of obstacles that the economy had to face, one may be left with an impression of inevitability. Salvadoran leaders behaved in a perfectly rational fashion and did exactly what could be expected from anyone in the same position: they took advantage of the few opportunities available to them. What could have been done differently? Weren't they helpless instruments of the enormous forces of international markets? Even during the worst of the crisis of 1898 they could not think of a product more profitable than coffee. Given the price situation, the factors of production available to them, and their own educational limitations, it would have been irrational to engage in any other productive activity. Since internal markets were virtually stagnant, small manufactures had little room for expansion. Export agriculture of products other than coffee

faced serious constraints; cotton cultivation would not be a real possibility until modern insecticides were available, while sugar was profitable only up to a point. Industry, in turn, had not even reached the gestation period. It would be implausible to think of policies designed to offset the powerful economic incentives to engage in coffee cultivation. After all, the state was financed by custom taxes and there was no hope of raising them anywhere else.

On the other hand, even within the constraints imposed by the limited resources and the pressures of the international markets, some things could have been done differently. Without entering into the realm of the implausible (one could wish for a different international economic order, for a different price structure in international markets, or for a different ideological outlook), there were two key obstacles that could have been overcome: the one imposed by constant warfare, and the one imposed by lack of education. In fact, an understanding of the advantages of peace and of the virtues of education were part of the mental furniture of the typical liberal of the time. The only problem is that it was necessary to take both things seriously for the country to become peaceful and educated. If the resources devoted to destruction had been devoted to education, the population would have had many more choices, the economy would have had many more alternatives, and inequality would have been less acute.

In the formation of human capital, as in any other form of investment, an early beginning and a steady effort would have made a big difference. Again, the contrast with Costa Rica is telling. In the latter country all forms of investment, including human capital, remained uninterrupted by warfare. There was a clear and steady commitment to education that paid off in terms of less inequality and greater growth. Market forces, by themselves, did not tell Salvadoran rulers that in the long run an educated population was an asset to everybody or that a more stable and viable society was good for business. It had to be a determination based on a sense of priorities, of a set of goals for the society at large. In this respect it is quite possible that the cultural and ethnic divisions inherited from the colonial period played an important role. The politics around the issue of the liberal reforms indicate that there was no sense of a common land.

A last important question remains. How much of today's problems can be blamed on nineteenth-century developments? Some basic aspects of the present crisis do go back to the problems of a one-crop export economy based on crippling inequalities. The main bequest of the nineteenth century was a small elite, entrenched in power and virtually closed to newcomers, that was to shape the twentieth century. There is also the problem of the political system. This book is not a

treatise on political theory, but one cannot help but wonder if the absolute power of the planters has something to do with their political inflexibility and narrow-mindedness. They were beyond credible challenges, they did not have to learn the art of compromise, they could insulate themselves from the rest of the population. The foundations left by the nineteenth century were very weak. But one should not leave twentieth-century leaders free of blame. Upon those weak foundations they built a structure heavy with injustices, inconsistencies, and political ineptitude.

Notes

Introduction

1 Before Independence

2 The Shattered Dreams of Independence

3 Organization of the State 1840–1880

4 Labor, Land, and Investment 1840–1880

5 The Opening of the Economy 1840–1880