Chapter XIX: The Need of a Democratic Finance in Mexico

BY CHARLES FERGUSON

During the summer of 1914, while Mr. M. C. Rolland was studying the financial system of the United States for Carranza, he came in contact with Mr. Charles Ferguson, who had devoted a year to investigating financial conditions in Europe. Mr. Rolland suggested the need of a democratic finance in Mexico, so as to liberate it from the financial system left over by J. Y. Limantour. The Mexican and the American investigators exchanged their views, and as both were on mutual and sympathetic ground with a perfect understanding of the subject, Mr. M. C. Rolland begged Mr. Ferguson to crystallize his ideas into an article. The following chapter is a simple outline of the idea which is behind the revolutionary reforms of all vital questions in Mexico.

Mr. Charles Ferguson was for a time one of the leading editorial writers of a well known Metropolitan paper. He was sent abroad by President Wilson to investigate the banking system of Europe. Mr. Ferguson is considered one of the greatest authorities on the subject of finance and banking in the United States.

Under the conditions of capitalistic and corporate organization and of universal banking and exchange that have spread throughout the world during the last two or three generations, the problem of democratic politics has become an entirely new problem. The old solutions, the ideas of Rousseau, Jefferson, Juarez, have become, in large part, inapplicable.

The change is mainly due to the strength of the modern business organization. The business organization tends to become stronger than the democratic state, because it deals more directly with the forces of nature and with the every day interests of ordinary men.

Everywhere in Europe, in the modern States of Asia and Africa, and in North and South America, there is a struggle going on between the business organization and the economic rights of the people.

This world-wide struggle has shown its acutest phases in Mexico.

The Mexican problem cannot be solved merely by the establishment of land reform, a wide suffrage and a representative parliament. These things are good and necessary, but they are not enough. If the banking and credit system of Mexico is left to settle back into the general lines approved by Diaz and Limantour, or by the orthodox financial opinion of Europe, the banks of Mexico will contravene the work of the political revolution.

And since the revolution cannot be wholly crushed, Mexico will continue to be a house divided against itself, and will utterly exhaust itself in a continuing series of revolutions and counter-revolutions.

The modern business system centres in the bank. If the democratic revolution is to prevail and stand fast, the business system of Mexico must be democratized. It is impossible to make business democratic otherwise than by making the bank democratic.

The leaders of the Mexican revolution shall seize upon the control of the capitalistic forces of the country. This can be done by improvising--perhaps by executive decree, perhaps otherwise--a central bank and a banking system that shall monopolize the banking function.

The existing banking systems of the world are in general based upon public debts and are motived in their operation by the interest of a creditor class. Mexico should have a banking system based first, upon the property rights of the nation--the sum of the material values that belong not to individuals but to the Commonwealth; second, upon a capitalization of the productive powers of the people to the extent that these can be developed by the civilizing projects of the bank.

Under existing banking systems the National estate is either not represented at all or else stands as debtor or claimant on a footing no higher than that of private estates. But the bank of the revolution should be the responsible legal trustee of the public estate, exclusively devoted to the improvement of that estate--_i.e._, to the betterment of the material status of common citizenship.

Under most banking systems the bankers have no direct interest or concern with the development of the natural and creative resources of a country. Their interest in the processes of production is at best indirect and incidental. What the bankers aim at is the accumulation of certificates of indebtedness against society at large. They are indeed concerned that the assets of Society at large shall equal its liabilities. But they make no effort and take no risk for the enrichment of society beyond bare solvency.

The general tendency of their finance is to load the working organization of the world with as heavy a weight of bond and mortgage as it will stand, and to vest the ownership of the securities in a comparatively small class of creditors.

The unsocial and unscientific character of the world’s banking systems is the main cause of that universal conflict between the business organization and the democratic state, which has reached its most poignant crisis in Mexico. If Mexico can work out a congruity between modern business organization and the economic rights of the people, it will solve the essential social problem of our times. It will win economic leadership in the family of nations. It will achieve unparalleled wealth and power.

The bank of the revolution should be governed by a board of directors, got together with a minimum of racial bias in the spirit--let us say--of the university--that is, of the arts and sciences.

There should be a dozen men, more or less, having the highest reputation and credit as engineers, agriculturists, sanitarians, administrators, and so on. They should be paid perhaps on the scale of Cabinet Ministers, but should derive no other income from Mexican sources. Their control of the bank should be disinterested and impersonal--like that of men in high public office.

Every detail of the banking business will undergo a marked change because of this change of motive. Yet there need be no serious division of opinion as to the financial technique that will best promote the new purpose.

The changes of practice concerning discount rates, note issues, metallic reserves, etc., will follow logically and obviously from the conception that the business of the bank is not the accumulation of enforceable claim against the public, but rather the husbanding of the public estate.

Banking, under any and all systems, is chiefly a matter of exchanging specific personal claims for general social claims. The bank receives personal debt-certificates and gives back certificates of social-debt or documentary claims against society at large. Personal credits at the bank are, in effect, charges against the public. Sound banking consists in not overcharging the public.

The mystery that shrouds all banking problems is due to the obscuring of the fundamental fact that banking has become, under modern conditions, the most vital social function; it determines the obligations owed by society to the individual and so fixes every man’s status and power.

It is absurd that such a social function should be performed without social responsibility and solely for the sake of a speculative private profit. The proposal is, therefore, that the revolution shall establish in Mexico the first banking system in the world deserving to be called modern. For no excellence of banking machinery can atone for the fact that throughout the whole circle of commerce, private credits and the corresponding public obligations are being measured and registered by men whose interest is quite separate from that of the public.

The proposed identification of the banking interest with the public interest does not necessarily imply that banks should be administered by political officials. It is indeed necessary, as an exigency of the revolution, that the new bank of Mexico should be backed by the highest political authority. But the real point is that modern banking will reach a normal development only when banking has become a responsible profession--in the analogy of law and medicine at their highest level. In the long run it will be found that a sound, democratic, financial system is to be regarded as the creator rather than the creature of democratic government.

The new Mexican government should take its bank managers from any quarter--as one might choose world-famous engineers or physicians to conquer a devastating plague, or to accomplish a constructive public work of extraordinary difficulty. These men should be chartered as directors of a corporation to set up a central banking institution in the City of Mexico and a system of branch banks in provincial towns. The basic capital of the bank should be a trust deed executed by the Mexican Government and conveying to the banking corporation such portions of the national estate as are not needed for the administrative uses of the government. The State would, of course, retain its right to annul if necessary the bank charter and trust deed--after reasonable notice and with due adjustment of the equities involved.

The Bank should be the general fiscal and economic agent of the Government for the enhancement of its revenues, the funding and amortizing of outstanding public debts and the development of the wealth of the country.

Through the bank, the government should take good care of the soldiers of the revolution--giving them possession of lands on easy terms and assistance in capitalizing farms and small business undertakings.

Legal means should be taken to cancel or compound uneconomic commercial concessions made to foreigners and other private persons by reactionary governments in the past. The inordinate foreign profits derivable from such concessions might be scaled down by a system of export duties.

It should be understood that the new bank in all its branches is not to be regarded as a passive or merely regulative factor in the economics of Mexico. It should, on the contrary, embody the highest possible organization of intelligence and will for the expansion of the productive life of the people. Much may be learned for this purpose from a study of the working methods of the Deutsche Bank of Berlin.