Encumbered Cuba: Capital Markets and Revolt, 1878-1895 (review)

This important and revealing book studies the economic roots of Cuban nationalism during the interwar period, between the end of the Ten Years' War (1878 ) and the new war of national liberation in 1895. Fernández argues that Spanish economic and fiscal policies during this period alienated large sectors of Cuban society, thus fueling anticolonial sentiments. These policies created economic and monetary uncertainty, "threatened land security, limited diversification or industrialization, and ensured unemployment and underemployment" (p. 3 ). In other words, these policies contributed significantly to what twentieth-century observers would later describe as Cuba's underdevelopment. A second and related argument is that "this was the period in which the fate of the Cuban economy and its relationship with the United States was sealed" (p. 3 ).

These arguments challenge the current narrative of Cuban nation making in several ways. Although historians have long recognized that economic frustration added to resentment against Spanish colonialism, most previous research on the 1895 War of Independence has concentrated on political, military, and ideological questions. Fernández, in contrast, places Spanish political economy at the center of the Cuban revolt. Encumbered Cuba also challenges the ingrained belief that 1898 was a defining moment in Cuba's history, a lost opportunity for economic diversification and industrialization. By 1898 , Fernández explains, it was too late, "because Cuba had already become established as an economic satellite of the United States since at least 1878 " (p. 156 ). U.S. intervention only reinforced development patterns (monoculture) and dependencies (sugar and the U.S. market) that had been entrenched by Spanish colonialism and by the island's landed oligarchy.

Most of the book studies the links between Spanish fiscal and colonial policies, U.S. bankers, brokers, and investors, and Cubans of various social strata. The author persuasively argues that Spain's decision to pay for the 1868-78 war debt with receipts from Cuban taxes contributed significantly to capital scarcity in postwar Cuba. This occurred at a time when capital needs were particularly acute, due to the war's disruption of production and on traditional labor arrangements, as evident in the declining numbers of slaves. Spain's failure to create even minimally responsive credit institutions in this conjuncture, in turn, increasingly tied planters to U.S. creditors, thus paving the way for U.S. financial capital to enter Cuba.

The lack of credit sources on the island was a function of government policy. The "most highly capitalized banks on the island," which should have covered the credit needs of private investors, were tied to the colonial state and "prioritized Treasury support over private investment" (pp. 84-85). Chapter 3 , "Profiting from Colonialism," studies the origin, structure, goals, and activities of the two most important banks in the island during this period: the Banco Español de la Habana (BEH, renamed later Banco Español de la Isla de Cuba, or BEIC) and the Banco Hispano-Colonial (BHC). Shortly after the beginning of the Ten Years' War, Spanish authorities decided to finance the war through loans from the BEH. These loans, "backed by nothing more than faith in the government's survival in Cuba," (p. 88 ) were to be repaid through extraordinary war taxes, sales of embargoed properties, and export duties. But as public debt mounted, sugar production declined, and bank notes depreciated, another institution was required. Thus the BHC was created "to assist the government further with its needs" (p. 89 ).

Links between the BEH/BEIC, the BHC, and the colonial government were so tight that the BEIC and the BEH were eventually given control of tax collection in the island. The BHC's extraordinary powers included such basic government functions as overseeing customs collections and nominating customs employees. In order to pay for military expenses during the war, the BHC occasionally delivered money directly to the governor in Havana, completely sidestepping the Treasury. Furthermore, in order to guarantee government control, bank officers were...