The Making of a Market: Credit, Henequen, and Notaries in Yucatán, 1850–1900

Chapter 1: Introduction

In developed capital markets, financial intermediaries and banks have almost become synonymous. Today, people deposit their savings with banks, make use of their payment facilities, invest through their brokerage offices, get cash at electronic tellers, and apply for mortgages by filling out standardized forms. Banks are ubiquitous financial institutions today, but they are a relatively recent phenomenon.1 In Mexico, before the existence of banks in the late nineteenth century, nonbank financial intermediaries handled most of the financial tasks we associate with banks. For all we know about banks, we still know very little about how the intermediaries that predate them functioned and who precisely they were. For example, absent specific formation charters, how did they become intermediaries in the first place, and what circumstances—be they legal, political, economic, or simply accidental—put them in a position to provide financial intermediation and to do so in such a way as to influence and create markets? These questions are all the more relevant in markets where economic growth happened without banks—which is Yucatán’s story and the topic of this book. Yucatán, like many regions in Latin America, experienced a protracted economic boom during the nineteenth century. Foreign demand for henequen, a local cordage fiber, stimulated the economy out of its postcolonial slump. Henequen had been used as naval cordage in the early nineteenth century and became the preferred binding twine in mechanical wheat binders in the United States and Canada in the late nineteenth century. Fueled by this demand for a primary good that was almost exclusive to the region, modern Yucatán transformed from a cattle-ranching and subsistence-farming society into a booming export-oriented agricultural economy. Chapter One Introduction 2 TH E M A K ING OF A M A R K ET In the context of Yucatán’s nineteenth-century agricultural boom, this book studies how credit markets worked before the emergence of modern banks. The boom occurred without the assistance of modern financial institutions; instead, mortgage loans arranged through local notaries raised the capital that land owners and merchants invested in crops and infrastructure . The importance of these informal or personal credit markets in supporting productive activities that generated growth and development is not surprising for early modern societies in which tradespeople, individuals , and religious institutions advanced loans.2 The novelty of the Yucat án case is that personal credit networks continued to be important in the nineteenth century and were very quickly mobilized through the person of the notary to finance one of the major commodity booms in Latin American history. This finding challenges the notion that large-scale investment capital could be mobilized only through formal financial institutions or through specialized enterprises directly engaged in the henequen trade. Yucatán changed from a regional backwater into a participant in the global cordage market, and it did so without any local banks. While foreign brokers extended trade loans to the most important producers and traders of henequen , all other participants in the local economy carried Yucatán from its colonial past into modernity by relying on traditional forms of personal finance. Even though personal credit was probably the major source of credit in most countries before the twentieth century, we know little about how these personal mortgage markets worked in Latin America. Historical research on credit markets has focused on banks, and economic historians have privileged these institutional histories and assumed that informal markets did not support a large enough part of the market. The case of Yucatán analyzed here overturns this assumption. This book provides an analysis of how intermediaries mobilized personal credit markets through the office of notaries, many of which became unwitting catalysts of Yucatán’s capitalist transformation. It provides a crucial addition to the historiography of formal institutional finance, showing that interpersonal credit markets operated before the creation of banks and that notaries were crucial financial intermediaries. In Yucat án’s personal, local, and small credit market, notaries embodied trust, monitored reputations, managed networks, and provided social enforcement to support the flow of credit. This example of economic growth supported by financial intermediaries demonstrates that additional and im- introduction 3 portant sources of credit can exist before and, perhaps most importantly, without banks. Economic Growth Latin America’s development lag compared to the United States or Europe has occupied historians for quite some time, and the explanations...