OUR BILL AGAINST REVOLUTIONARY MEXICO
The American after-dinner orator roars his boast of “two billions
of American dollars in Mexico” and moans his claim of “a billion of
damage” done to those pioneer American dollars. Whereupon the Mexican
(of whatever political complexion) wails protest that three-quarters
of those American dollars were made out of Mexico herself, and our
State Department, which alone might clarify the matter, perforce keeps
silence. Up to the present time few have attempted to bridge the gulf
between the orator and the Mexican and no one that gulf between the
orator and the State Department. We live in an age of “convictions” and
we choose our figures according to our beliefs.
Fifteen years ago an American consul in Chihuahua, Marion Letcher,
wrote a report in which he estimated (frankly without figures) that the
total foreign investments in Mexico were $1,641,054,180, distributed as
follows:
American $1,057,770,000
British 321,302,800
French 143,446,000
Various 118,535,380
--------------
Total $1,641,054,180
These figures have been assailed, especially as regards the
comparatively small sum alloted to the British, but they remain to this
day the only official estimate available. I have, however, been able
to find another compilation, worked out also by Americans, but this by
the research departments of several large banking groups, with full
access to all Mexican government figures and to the stock books of most
of the great American companies. The total, which is for 1914, before
the vast bulk of the investment in oil, is almost identical, but the
distribution is startlingly different:
American $655,000,000
British 670,000,000
French 285,000,000
German 75,000,000
Spanish, Dutch, etc. 190,000,000
-------------
Total $1,875,000,000
These figures claim to include the foreign investment in the National
Debt of Mexico and are said to estimate the actual distribution,
as far as can be worked out, of the holdings of the securities of
all companies operating in Mexico. Consul Letcher’s figures were
conceivably based largely on the nationality of the corporations alone.
On the other hand, Europe contributed more than half the invested
capital of such important groups as the National Railways of Mexico,
made up of companies which were all incorporated under American laws.
When this new compilation of investment distribution first came to
my hands, I was, I may admit, inclined to “split the difference.” As
careful a study of the American investment field as it is possible to
make has, however, convinced me that the new figures are much more
nearly correct than those of Consul Letcher with one exception. I
do not believe that they include all the American investment in the
Mexican government, state and municipal bonds held abroad.
On the other hand, neither Consul Letcher’s figures nor the other
compilation represent the actual full value of American investments in
Mexico at the fall of Diaz in 1911. It is important that this fact be
remembered because by that date the moneys which had gone into Mexico
for foreign enterprise had increased many fold through the energy
which went with them and pushed them forward to success. I believe
that the original American investment had grown, by 1911, to fully
$2,000,000,000, but in order to be absolutely just from the Mexican
viewpoint we can discuss the damages on the basis of the actual cash
invested--the loss, incidentally, looms even greater. On the other
hand, we must not forget that however the Mexicans may claim that the
increase in values represents an “exploitation” of their country’s
resources, the concomitant advance in all values throughout the land
in the era of Diaz was almost entirely the direct result of those same
foreign enterprises.
From many sources, including of course the two authorities which have
been quoted, I have estimated the American investment of actual cash
capital and have set against it the losses in actual physical damage
and in ruined business, since 1910, as follows:
AMERICAN CAPITAL IN MEXICO
Original Physical Actual
Investment Damage Losses
Railroads $150,000,000 $30,000,000 $60,000,000
Oil 200,000,000 5,000,000 100,000,000
Mines 200,000,000 15,000,000 100,000,000
Lands and cattle 50,000,000 10,000,000 20,000,000
Industries and public
service 50,000,000 10,000,000 20,000,000
------------ ----------- ------------
Total $650,000,000 $70,000,000 $300,000,000
Damage claims aggregating $500,000,000 are said to have been filed with
the American State Department, but no official confirmation of this has
ever been forthcoming. However, the claims which Americans have against
Mexico, whether filed in the State Department or not, must be divided
into two categories, the actual and the potential damage, and perforce
includes also the claims due for loss of life and personal damages.
The actual harm already done includes: physical damage to property;
unwarranted and illegitimate taxes which approach confiscation;
destruction of property values through such taxation and through the
prevalence of banditry; destruction of property values by the driving
out of stable government; destruction of the financial and credit
system of the country through government decrees and repudiations;
losses in legitimate profits which would have been made during the
recent eras of high prices; actual loss in market value of property
through the estrangement of the foreign capital which alone, in Mexico,
presents a reliable buying element; destruction of property values
through the exile of the foreigners who formed the industrious and
capable organization which maintained those values.
The potential damages are chiefly those which come from the fact that
there hangs over all foreign property in Mexico to-day, and has hung
for five years, a sword of Damocles in the threatened confiscation
of such property under the radical “nationalization” plans of the
revolutionary governments. These, briefly, provide that: foreign
corporations and individuals are incompetent to own property in Mexico
unless they renounce their citizenship and appear only as Mexicans
before the Mexican law; the government may appropriate all large
tracts of land, giving in return unguaranteed state agrarian bonds of
virtually no value; the government may “nationalize” the oil in the
ground, making it subject to the denouncement of any one, whether the
property owner or not, when the whole oil-producing organization of
Mexico to-day is founded on the principle of the oil belonging to the
land itself; no foreigners, under any conditions, may own any land
within sixty miles of the frontier or thirty miles of the seacoast.
Lastly, and in a group by itself, are the damage claims arising from
the killing of nearly 600 American citizens in Mexico since the Madero
revolution began in 1910. The claims for these outrages and for the
maiming and raping of many hundreds more occupy a class by themselves,
and will, we may confidently believe, be the first which will be paid
when Mexico returns to the ways of civilization.
Just here we can imagine the official Mexican “press department”
preparing to state that “Mexico has always paid her bills, including
all damage claims.” This, however, is not quite literally true. She
has paid foreign damage claims at the muzzles of foreign cannon, to
be sure, and President Diaz, in that long rule which many call “the
anomaly of Mexican history” paid all the bills presented to him. But
the only “convention” which ever sat to adjudicate American damage
claims was hardly the success that would justify any such sweeping
assertion of Mexico’s probity. In 1840, after years of turmoil,
and after a show of force, President Jackson called a convention of
Americans and Mexicans together to consider American damage claims.
They sat from 1840 to 1842, allowed $2,000,000 in damage claims,
rejected $1,000,000 and when they adjourned left $3,000,000 still to
be considered. Under an arrangement of twenty installments, Mexico
paid three and defaulted the rest. The cash was paid by the United
States, and the slate was wiped clean after the Mexican war of 1847-48.
Finally, this war, which as schoolboys we were taught to regard as a
sort of “blot on the national escutcheon” was the result of continued
outrages to Americans and continued diplomatic jockeyings with an Uncle
Sam who even then was much the same model of patience which he is
to-day.
In the public discussion of the damage which has been done to American
properties in Mexico, there has been much emphasis on the potential
harm from the so-called “socialistic” or “bolsheviki” tenets of the new
Mexican constitution. There have been vast, crippling losses, yet it
seems as if most of what we have heard has been the things which will
happen if Mexico is allowed to proceed along her present road. There is
reason enough for this fear and for this emphasis, and one of the great
battles being fought in the world to-day is that which these Americans
are putting up not alone for themselves but for the very principles of
property rights. But so far Mexico and particularly the wily gentlemen
who have occupied the Mexican presidential chair have always tried to
get all they could and have often carried the mis-named “American”
bluff to astonishing lengths--but have almost as often retired when
the game turned against them. They have used the potential damage as a
means of extracting an increasing toll of taxes and of loot, and for
little else, as yet.
In this chapter I am, as already mentioned, intentionally avoiding
taking these “potential damages” into consideration. I feel that we
must have, as a starting point, a comprehensible picture of what has
already actually happened to American investments in Mexico.
Most of the American money in Mexico went to that country during the
thirty-four years of Diaz rule. This period was marked not by blind
adoration of the foreigner, as the revolutionists now state, but by
a sane and far-seeing realization that foreign capital must come
to Mexico if her national and economic potentialities were to be
developed. Foreigners were encouraged generously by laws recognizing
the privileges of pioneers in protection and in assistance in the form
of exemption from taxes during their development period (the term
was usually for ten years). The idea was to allow them to import
machinery without duties and get on their feet as quickly as possible.
Practically none of these companies was given land, for there is no
vacant Mexican government land worth having.
The first and the greatest American corporations to enter Mexico were
the railroads. These held concessions, made according to law, but
Mexico had profited by the American government’s experience with its
trans-continental lines, and the subsidies and grants were small indeed
compared with those given to our Union Pacific, for instance. It is
worth noting also that there have never been such scandals as our great
railroads reveled in, and that virtually every cent was invested in the
lines themselves. The Mexican railway companies which were consolidated
in 1907 into the National Railways of Mexico were never paying ventures
for the builders, and until the merger few dividends had ever been
paid by any of the lines. For about four years following the merger
conditions improved greatly, but in 1912 troubles began, and by 1913
all was chaos and destruction.
From then on to to-day, the story of the railways of Mexico has been
a tragic romance. It can be reduced to figures, necessarily cold in
the telling, but every figure the result of dramatic and crushingly
realistic incident. The National Railways of Mexico, a property worth
over $250,000,000 as a physical plant alone, was taken over by the
Carranza government on December 4, 1914, and since that time the
bondholders have received no cent of interest and the physical property
has been crushed and battered and all but destroyed. On January 1 of
1921 over $75,000,000 of back interest was unpaid and the defaulted
payments on fixed charges is still piling up at the rate of $1,000,000
a month, while the Mexican government is collecting from the operating
commission $1,500,000 a month--a sum set by Carranza for the commission
to turn in by any means available, as higher rates, scrimping on
repairs, deterioration in upkeep.
The confiscation of the railway properties by the Mexican government
under Carranza is one of the most astonishing and illuminating
pages in the whole story of Carranza’s campaign against capital and
the foreigners. But although it began with him, it apparently has
continued into the rule of his successors--for they seem a part of
the revolution of which he was and still is the dominating, sinister
genius. Under the terms of the merger of 1907, the Mexican government
was given the voting power--but not the title to--50 per cent of the
stock of the company, under certain definite conditions laid down by
the bondholders. This 50 per cent interest represented no capital
invested, nor was it a recognition of any debt which the railways
might have imagined they owed the government. It was given outright in
consideration of one thing, the guaranteeing by the Mexican government
of a return of 4 per cent interest on the bonds of the merged lines. To
the merger the government contributed nothing of tangible value--save
one short line of railway worth about $5,000. Its permission was
needed, perhaps, for the transfer of the railway concessions to the
merger, but this would probably have been given without question had it
been asked alone. The interests back of the merger believed that the
Mexican government guarantee of the interest on the bonds was worth
the gift of the voting right of half the common stock--and on this
understanding alone it was given.
The taking over of the physical property by the Mexican government
followed the American occupation of Vera Cruz in 1914, and shortly
afterwards Carranza made his claim official, on the ground of the 50
per cent voting right! On the basis of this right alone the Mexican
government to-day holds control of the National Railways of Mexico,
a right once given on the solemn guarantee of the interest on the
bonds--which has not been paid for eight years--and with the recognized
provision that the bondholders should name the president of the lines,
and various officials and members of the board--and to-day there is
not one official who is not a creature of the government which happens
to be in power in Mexico!
Upon such a basis rests the title of the Mexican government to the
National Railways. The subsidies paid by the Diaz government in years
gone by for construction were given as the subsidies were given to the
American railways which crossed the prairies to the Pacific coast--to
make such construction possible in recognition of their benefit to the
country. The Mexican subsidies were less than those given to the Union
Pacific by the United States government and not one touch of scandal
(such as marked our own railway development) was ever breathed against
that of Mexico. The subsidies give no tangible claim to the lines--and
as far as I know have never been advanced as a claim. The only hold
of Mexico over those properties is the shadowy title conveyed by the
voting right of a block of stock given voluntarily by the bondholders
in return for guarantees which have been thrown to the winds for these
eight years.
In the period since the government has had control of the lines,
the physical property has deteriorated to a point where only the
magnificently solid work done by the American builders to-day holds
them together. Operated by the Mexicans, with former firemen as
general superintendents and minor native clerks as high officials, the
properties went their way of slow destruction in the days of Carranza.
Since that time, the turnover of railway officials has eliminated many
of the employees who were trained under the American executives of the
Diaz and Madero time, and to-day the roads are in the hands of men who
learned all they know of the railway business from those who in their
turn had gleaned their little knowledge from their American chiefs--now
gone from Mexico eight years. The result is a ruin comparable to
nothing, probably, but the ruin of railway properties in Russia to-day.
Of the more than 800 locomotives owned in 1914, only 333 (by the
notoriously inaccurate Mexican government figures) are said to be
running. The rest lie at the bottoms of cañons or are rusting in
banks of hundreds in shop yards, as I have this year seen and counted
over 100 in the one yard of Monterey. The freight cars have decreased
from 18,000 to 7,000, and usable passenger cars are virtually unknown
off the main lines to-day--all were wantonly destroyed in the early
revolution or stolen and converted into dwelling-places for “deserving
revolutionaries.” Three-quarters of all the bridges on the 8,000 miles
of line are damaged, dozens of them beyond repair, thanks to the
diabolical perfection of the methods of destruction used by various
Mexican patriots. The tie replacements are seven years behind; nearly
20,000,000 are needed, worth over $17,000,000. Other items in the
$80,000,000 replacement bill are $30,000,000 for cars, $12,000,000 for
locomotives and $4,000,000 for rails.
This loss has been the result of two forms of destruction--the
depredations of the fighting factions and the cumulative destruction
of neglect and failure in upkeep. Instances multiply. During one month
(March, 1914) seventy trains were blown up while running at 30 to 40
miles an hour; the patriots used to connect up their dynamite with
electric batteries and then sight along two sticks from their safe
retreat in the bushes and so set off the charge under whatever section
of the train caught their fancy. At one time in Monterey in 1915,
revolutionary troops burned 800 loaded freight cars; their skeletons
line the Monterey sidings for all the world to see, to-day. One of the
long bridges on the road to Eagle Pass, on the American border, was
wrecked by running a train of loaded coke cars with two locomotives on
each end out on the bridge, firing the train and blowing up the bridge
when the burning coke had heated the steel. A similar trick on the
Tampico line was to take out a rail, then set fire to a train of oil
cars and run it full speed on the bridge, where it was derailed and the
same process was followed as with the coke train.
The rotting of the ties on the road has left most of the branch lines
all but impassable, save to the Mexican enginemen who know each bump
and are quite willing to “take another chance.” The wrecked bridges,
jacked up on timbers, have uncomfortable and terrifying “dips.” The
list can be multiplied indefinitely. Yet perhaps the most expressive
sight to be seen in Mexico to-day is those banks of rusting engines,
100 in Monterey, 100 at Aguascalientes, others at San Luis Potosi,
Mexico City and Guadalajara. These engines were only slightly damaged
when they were side-tracked, but through the failure of the government
to furnish repair materials, they have been gradually stripped of parts
to repair other engines, the brasses have been carried off and sold for
junk and the whole field of ruin left like a desert waste.
There is in the Mexican railway law a provision for compensation
in case the railways are taken over “for military purposes.” It
is estimated that under this law the damages collectable are only
$10,000,000 a year--less by $2,000,000 than the default in the fixed
charges alone. The estimated $80,000,000 of physical damage (a
mere estimate until an actual valuation can be made) is presumably
collectable. The bill of the railroads is, however, as follows:
Physical losses, $80,000,000; defaulted interest to June, 1921,
$75,000,000; total, $155,000,000. It is believed that about one-third
of the bonds are held by Americans, so that their loss is over
$50,000,000. In addition, there has been an individual loss in the
disposal of the bonds by small holders, at sacrifices as great as 80
per cent. It is even said that the Carranza government had hopes of
being able to buy up the railway bond issue when its administrative
policies had reduced the quotations to less than 30 per cent of
par. Only the lack of money prevented this coup for real government
ownership, it is said.
In the above, I have treated only with the National Railways of Mexico.
Outside of this system the only important lines in Mexico are the
Mexican Railway (British owned) which has now been returned to the
stockholders but without compensation for damages and the Southern
Pacific in Mexico (American owned). The former suffered severe physical
destructions, but the latter’s bill for damages, while heavy, sinks
into relative insignificance.
In the confines of a general study, space can not be given to the
sidelights on the Mexican railway situation--a situation almost
Teutonic in its colossal blunders, splendidly American in the elements
which have gone to save it from utter wreck. The long years of patient
railway building, the hundreds of miles of rock-ballasted lines across
unproductive wastes, all done under American management, gave Mexico
a system which has held together despite the wreckage of bandits
and the ravages of time and neglect. The traffic of the nation moves
to-day, not in the wheezy trains which the Mexicans maintain, but
overwhelmingly in a system of privately owned locomotives and cars
operated by the American mining and trading companies at staggering
expense. Their 100 locomotives, in perfect repair (kept so in their own
shops) and their nearly 3,000 freight cars probably represent half of
the railway equipment running on the National Railways to-day, and they
probably carry far more than half the freight. They pay full freight
rates in addition to furnishing the trains, and although much of this
equipment has been taken over by the government as this is written, it
is no exaggeration to say that but for these American companies and
their magnificent efforts to save what is to be saved of their Mexican
properties Mexico would to-day be stagnant,--a land of chaos comparable
only to the period of fifty years ago, before Diaz ruled.
The great oil business of Mexico owes its existence primarily to
American enterprise. Of the $300,000,000 of cash invested in the oil
fields, $200,000,000 is American. To-day, even after the colossal
production during the war, only a small portion of this investment has
been recovered, for only two purely Mexican companies, the Mexican
Petroleum (American) and the Eagle (British) are paying dividends. The
oil business in all lands is so speculative that its returns are quoted
not as “dividends” or “interest,” but as “recovery,” for until the
great investment in drilling, tanks, pipe lines, refineries and ships
is got back, there is no surety that the venture itself will prove
profitable. For this reason the losses of the oil companies through
the Mexican revolutions can be only an estimate. From sources which I
have been able to reach, I place the actual physical losses at about
$5,000,000 for the American companies. This seems like a very small
item, but it does not count the failures of most of the 300 companies
which have put money into Mexican oil or the vast sums paid in taxes
or lost through oppression. Nor does it take into consideration the
potential losses if Mexico enforces her “nationalization” plan. These
last would be legitimately included here, for as I say, they jeopardize
the “recovery” of the investment still remaining unpaid for, and
Mexican oil stock quotations have suffered as a result. Mexico still
threatens to enforce the provisions of the new constitution which
make oil the property of the nation and its exploitation a matter of
concession, like gold and silver. The oil companies are fighting this
plan, for they entered Mexico and invested millions in oil lands and
leases from individuals (no land was ever given them) under a mining
law which left coal and oil the property of the owner of the land,
unlike gold and all other minerals.
The actual bill of our oil companies includes, as the chief single
item, a $2,000,000 loss due to the Battle of Ebano, fought over
American property in the spring of 1915. Oil, tanks, pipe lines and
refinery buildings were destroyed, a single cannon ball igniting a tank
containing 850,000 barrels of oil, all of which was burned. The item
of direct thievery (largely by federal troops) is only about $300,000,
but petty destruction, murderous assaults, the killing of a score of
valuable employees and the tribute to bandits and federal “generals”
pile the total up. Tribute has been levied, first by the federal
Carrancistas, and from January, 1915, to March, 1920, by Manuel Pelaez,
the former rebel leader, to a total of about $2,000,000, Pelaez’s
figure being a regular $30,000 a month up to his joining the successful
Obregon revolution in 1920 and so becoming a “federal.”
The ravaging of the oil wells is full of picturesque and terrible
incident, like the railways. The most striking and costly was the
outrage perpetuated by General Candido Aguilar, son-in-law of Carranza.
On December 13, 1913, Aguilar demanded, from the Eagle Oil Company
(British) tribute to the sum of $10,000. This was not forthcoming
so Aguilar proceeded to carry out his threat of “shutting in” the
great “El Portrero” well, one of the most famous in Mexican oil
history, which had been a steady producer, for two and a half years,
of 30,000 barrels per day. He succeeded in capping it, and before the
casing was finally blown out, the oil had broken through the ground
in dozens of places, including the bed of a neighboring river. The
whole countryside was in imminent danger of a terrible holocaust if
the oil on the river flowed away and ignited, as it surely would, but
by superhuman efforts this danger was averted. But all other attempts
to save the oil and repair the damage were almost fruitless, and for
months the seepage went on, until at last the well was reduced to
salt water and $20,000,000 worth of oil had been lost. This loss is
technically British, although it is probable that the bill for damages
will fall upon the United States, for it was undoubtedly through the
instrumentality of our State Department and its emphasis of the Monroe
Doctrine that Great Britain was restrained from taking action.
Another item to be noted is the great Carranza tax system which
continued in full force into the era of Obregon and costs the oil
companies some $4,000,000 per month. Part of this may be recognized in
time as legitimate, but it violates the letter of the franchises of
most of the companies. To this bill of claims will also be added the
losses incident to carrying out the orders of our Department of State
for all Americans to withdraw from Mexico on two occasions. Each time
about one month’s production was lost.
I have noted above the far-reaching possibilities of destruction to oil
properties entailed in the “nationalization” plans. While these are
in abeyance pending “investigation and legislation” the oil companies
have other drains on their resources, such as government levies for
dredging the river at Tampico (while the companies’ own dredges do the
work), the requirement of special licenses to drill each well, and the
virtual curtailment of all development work outside the Tampico-Tuxpam
district. All add to the total loot of the revolutionists, and continue
the threat against foreign business development throughout all Mexico.
About $200,000,000 of American money has gone into mining in Mexico.
Practically all of it has been legitimate business investment, in
low grade or old abandoned bonanza properties, in mills and in
smelters--the speculative period of bonanza mining such as we have
had in our own West was passed in Mexico a century before American
money began to flow across the Rio Grande. Our American investment
could therefore by no means be regarded as a speculative venture, and
the margin of return was relatively small--so small in fact that
Mexicans did not and would not now consider such mining as profitable
investment. We are, therefore, justified in taking a serious and
calculating view of the damage done to American mining properties under
revolutionary rule.
From sources available, I would estimate the damage done American
mining properties in Mexico at $15,000,000--this is very conservative.
There has, however, been little of the wanton destruction of mines such
as the Germans practiced in Northern France. One instance, however,
stands out, and this was to a coal mining property in northern Mexico,
the Agujita, less than 100 miles south of Eagle Pass, Texas. In May,
1913, General Jesus Carranza, brother of the president, demanded
$50,000 from the manager of this property, owned by American and other
foreign capital. The money was not on the ground and there was no
telegraphic communication with Mexico City, so it could not be paid.
The property was then wrecked by Carranza soldiers, several hundred
coke ovens blown up, the mines fired and flooded, buildings burned,
etc.,--damage estimated at $1,000,000.
Some other incidents of this sort are recorded, but the largest
physical damage is indirect, due to the driving off of workers and
the murder of the American engineers, so that great mining properties
were abandoned temporarily with the result that the water came in
and tremendous values in timbering and stoping have been destroyed.
In some instances the damage caused by water has mounted up to vast
sums; one great mine, the Tiro General, an American property, will
for instance require $300,000 before it can be operated again. Other
properties abandoned from time to time during the years when railway
traffic was interrupted, have similar bills for repairs, and hundreds
of other mines, great and small, have been kept closed through the most
profitable period mining has ever known (that during the Great War),
with vast losses, although the ore is of course still in the ground and
will some day be taken out.
The decrees and laws put into effect by the Mexican government in its
effort to raise money have had a serious effect on mining. There have
been new export taxes on metals, for instance, 5 per cent on lead,
copper and zinc, where before nothing was assessed, and in some cases,
as in that of copper, definite sums per pound have been assessed,
with the result that the falling copper prices caused the closing of
great properties like that of Cananea (American) and El Boleo (largely
French). Silver and gold were taxed 10 per cent as against 2¹⁄₂ per
cent in the old days; during the war the export of gold was prohibited
and half of the value of the silver exported had to be returned
to Mexico in gold. Taxes on mining claims also have been increased
tremendously, so that in 1916 a group of forty-five American companies
estimated for the American-Mexican commission sitting in Atlantic City
that where in 1912 they paid $96,000 in taxes on a group of claims the
new laws would have collected $569,000 and where in 1912 the export
taxes were $1,726,000, the export taxes on the same quantity of metal
(if it had been taken out, which it was not) would have been $7,000,000.
During the war, only high metal prices kept any mining business going
in Mexico. After the armistice, hundreds of mines and all but a few
smelters were closed down, and only the high price of silver, as long
as it continued, allowed those that were left to keep running. Even
during the era of high prices it was impossible for the mines which
were operating to do the development work which alone makes possible
the continued operation of mines under modern conditions.
Due to taxation, heavy freight costs, scarcity of materials and of
labor, bandit raids and uncertain supplies, the science of mining in
Mexico thus slipped back thirty years. This, in a phrase, sums up the
reason for the losses and the conditions which make it impossible
for mines to operate to-day where in times of ordered, intelligent
government, they were running and supporting hundreds of thousands of
Mexicans in comfort and peace.
Figures presenting the case of the land and cattle companies are
almost impossible to obtain, for these interests have never organized
as the oil and mining men have, and the only possible sources of such
information have not been able to collect figures enough to cover the
situation. Roughly, however, it is estimated that $50,000,000 of actual
American money has been invested in land in Mexico, and although the
titles to the properties still remain (always subject to the proposed
confiscation of foreign property), the loss in capital invested, of
live stock and crops, can probably be placed at over $10,000,000. The
land companies and individual American holders of lands have, however,
been the greatest sufferers, perhaps, of all the interests, for the
actual worth of the land they occupied was infinitesimal compared with
the value which their very presence and industry created for it.
The Mormon colonies of northern Chihuahua, near Casas Grandes, were
amongst the most prosperous, in a comparatively large way, of all the
agricultural sections of Mexico. Here the “desert blossomed as the
rose” and the American colonists, industrious and prosperous, were
becoming valuable contributors to the Mexican national wealth. All this
has been swept away, houses burned, cattle run off, men, women and
even the children murdered and maltreated, and the whole enterprise all
but destroyed. The case is paralleled all over the country.
Millions of dollars have been invested by Americans in tropical
plantations, and some at least of the properties were of great
potential value. The story of the wrecking, raiding, pillaging and
murdering on these properties would cover pages and the sums actually
lost and the values destroyed by the interruption of development run up
into great totals.
At the other end of the country, in Sonora, the records show the
systematic ruin of the Yaqui Delta Land and Water Co., which, beginning
under President Madero, had invested $3,000,000 in land, surveys and
experiment stations and was turning a great property worthless for
anything but grazing, into a paradise of irrigated farms. Beginning
with Carranza and continuing steadily since this company’s property
has been despoiled, and by means of confiscatory legislation, new
interpretations of franchises and overwhelming taxation has been
reduced to ruin and even the government franchise itself finally
annulled. The Mexicans have no plans and no money to do such vast
development themselves, so the destruction of this property, pushing
it back to the mere value of the grazing land, was utterly wanton and
deprives Mexico of a great agricultural development of the type which
she sorely needs.
In industrial, public service, banks and other classes of investment
American money has been put into Mexico to a total of about
$50,000,000. Most of the industrial and public service corporations
are owned by foreigners in Mexico, the only exceptions being a few
manufacturing plants and undeveloped tramway and city water plants.
The majority of this capital is, however, British, French and German,
American money having gone into the other interests described. Much of
this industrial property has been destroyed, and the public service
corporations have been taken over by the government on various pretexts
and without payment, for the money they have earned has gone into the
Mexican national war chest. There remains, however, the possibility of
damage claims, which in these cases can be easily established.
Of the American corporations engaged in industries a typical case is
that of the Continental Rubber Company, which has invested $5,000,000
in the guayule rubber business in north central Mexico. In 1910 the
guayule exports of Mexico were 28,000,000 pounds, worth in the market
approximately $20,000,000, and of this the Continental exported the
largest share. To-day the guayule exports are practically nothing on
the part of the companies, while the guayule shrubs on their lands are
being cut and shipped by roving bands of bandits and peons. The vast
Hacienda de Cedros, covering 2,000,000 acres, was bought by the company
nearly fifteen years ago, when its value was around $1,000,000. At the
height of the guayule business its worth was many times this sum, but
to-day, even with the chances of a future recognition of the title of
the American company, it could not be sold for its original cost. Like
all foreign properties in Mexico which have been successful, the value
of this hacienda was in the industry of the Americans who owned and
managed it--a value which cannot be estimated or set down in figures in
a damage claim.
The Mexican Banks of Issue, the backbone of the credit system of
Mexico, were owned only in small part by American interests. Their
destruction and the wiping out of the entire Mexican financial system
which was built up by Diaz, must not be forgotten in trying to get a
picture of the destruction wrought by the Mexican revolutionary bandits
and their governments. The paper money systems which scourged the
country from 1913 to 1916 cost foreigners millions of dollars which
can never be shown in figures, owing to the fluctuations of the paper
pesos. The upsetting of credit, which those who study the situation
soon find was due largely to Carranza decrees (whether justified by
circumstances or not) has set Mexico back nearly fifty years and has
depressed values of property and investment beyond any calculation but
the most careful studies by experts in finance as well as industry.
It is such phases of the Mexican credit system of to-day which
constitute the real damage claims against Mexico--claims which
can hardly be estimated. I place the figure at $1,000,000,000,
and yet its potentialities are far more than that. At the present
moment the greatest actual loss--even though it can be partially
repaired if the future develops sane government in Mexico--is in the
virtual destruction of the market for property in Mexico. The new
constitution and the decrees and laws under it virtually prohibit
foreigners from owning anything in a vast restricted zone along the
border and seacoast, a zone including the richest foreign holdings
in Mexico. They prohibit foreigners from owning real estate anywhere
unless they agree never to appeal to their home governments in case
of trouble. The effect of this is to eliminate the only possible
market for valuable property. The Mexicans, and particularly the
Mexicans who are in control to-day, will not, need not, can not buy
such properties--foreigners and the opportunities which were open to
foreigners in Mexico before the revolution actually created the market
value of such property, because they and they alone were the possible
purchasers.
Even well-developed small farming tracts cannot be sold to small
Mexican farmers--such small farmers hardly exist as a class and where
they do exist, their experience and their financial capacity do not
lead them to consider the purchase of improved farms. And above all is
the promise and the performance, in some cases, of the much-heralded
land distribution of the revolutionary governments. Where men can get
something for nothing, or on their own worthless credit, they do not
buy in the open market.
Aside from this destruction of the values of foreign property holdings
in Mexico by making transfer virtually impossible, there is, once more,
that omnipresent menace of confiscation which makes men seek privileges
instead of their as yet uncertain legal rights, for the protection
of what they have. No longer do men buy to develop--they take, as in
the oil fields, only what is sure to return large profits in a very
brief time, for they know that even if they have privilege, and think
they know how to keep on having privilege for themselves, they cannot
transfer their capacity for getting privilege when they seek to sell
their property. There are no longer relative values of property, in
Mexico--property is worth only what can be got out of it, and got
quickly.
This all makes up an uninspiring picture. But we must look on such
pictures, must weigh and judge them ere we can see the way through and
beyond them. That there is such a way must not be forgotten. It lies
beyond the realm of mere political reform, for to-day, as all through
the revolutionary history of Mexico the curse of the country is _the
application of political remedies to economic ills_--that phrase should
be burned into the brain of all who seek knowledge of the real Mexico.
That the relief is to come from the womb of revolution has been
the hope of all who have watched the struggles in Mexico without
understanding them. The failure of their hopes has been continuous.
Madero, Huerta, Carranza, de la Huerta, Obregon,--to each in turn
have such watchers transferred their allegiance and their faith. Each
has failed, in so far as each has applied only the political remedy.
The result has been the utter debasement of Mexican credit, the utter
outraging of Mexican and foreign faith in Mexico herself. To-day, as
I have said, Mexicans do not believe in Mexico, and each new failure
of the political remedy sends them further away from her altars. What,
then, is the answer?
The answer is but the following of the inexorable logic of life--and
of business. We shall find it, not in the application of new politics,
of new (or of old) constitutions and laws and decrees, not in the
ravings of dreamers or of petty states-men. We shall find it, and shall
know it when we find it, in a solution of the practical problems of
Mexican commerce, labor and business by the practical men of affairs
of Mexico and of the world. Our part shall be a very great part, for
the business men of the United States, above all others, must show the
way. Mexico must in the end bow to practical ideas of practical men,
and in bowing to that yoke she will see her future unfold. Of the ways
of finding the road and of turning Mexico upon it, we shall deal later.
Only here, at the end of this dismal chapter of failure to solve the
economic problems by political nostrums, I wish to indicate that there
is, and will be, a way of hope and of salvation--from within Mexico
herself.