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This is the pre-copy-editing text of the article appearing as: "Foreign Creditors and the Politics of Development in Australia and Argentina 1880-1913," International Studies Quarterly, 33:3, September 1989, pp. 281-301. A note on the notes: click on the note to see it; click on your "back" button to return to the text.

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FOREIGN CREDITORS AND THE POLITICS OF DEVELOPMENT IN AUSTRALIA AND ARGENTINA 1880-1913

Herman Schwartz
Government and Foreign Affairs
PO Box 400787
University of Virginia
Charlottesville VA 22904-4787
434 924 7818 (x3359 fax)
e-mail: hms2f@virginia.edu
http://www.people.virginia.edu/~hms2f

Author Bio note

Herman Schwartz is Professor of Government and Foreign Affairs at the University of Virginia. He is author of In the Dominions of Debt, States vs. Markets (1^st & 2^nd ed.). See http://www.people.virginia.edu/~hms2f for other published work on similar topics and welfare state issues.

Author's note

The author wishes to thank Richard Bensel, Elizabeth Sanders, Charles Tilly, Aristide Zolberg and four anonymous reviewers for comments and criticism; errors remain mine.

Foreign Creditors and the Politics of Development In Australia and Argentina 1880-1913

INTRODUCTION

What political, economic and social factors cause political stability and economic growth? Many scholars have compared Argentina and Australia to in search of answers to this question. Most of these scholars believe the key differences accounting for Australia's growth and stability and Argentina's instability and stagnation emerged at the end of the nineteenth century (inter alia see Smithies, 1965; Moran, 1970; Ehrensaft and Armstrong, 1978; Dyster, 1979; Fogarty and Gallo, 1979; Denoon, 1983; Duncan and Fogarty, 1985; Platt and di Tella, 1985; Senghaas, 1985). Despite a diversity of theoretical approaches, these studies all accept the notion that large landholders impede development. Therefore they see Australian Labor's greater strength relative to landowners at the end of the nineteenth century and beginning of the twentieth as the key factor differentiating Australia from Argentina.(1) Duncan and Fogarty (1985), the best of these, seem a partial exception but ultimately fit this pattern too. Labor's strength generally is explained in terms of qualities inhering to or concerning Labor and its substratum of unions: superior organization, legal protections, etc. These studies thus fail to consider the degree to which Australian Labor's strength was a product of Australian landowners' prior defeat at the hands of their creditors.

Put crudely, Australia's greater degree of colonial subjection meant that foreign lenders--largely British-- were stronger there than in Argentina, and that in contests between lenders and landowners in both countries, lenders prevailed in Australia but not Argentina. Creditors' role in defeating Australian landholders in turn calls into question these analysts' assumption that landholders' economic interests as a class necessarily impede development. Instead, we must substitute a more textured appreciation of landholders that considers their interests as producers, interests which do not necessarily impede development.

This essay significantly revises the three common features most of these analyses possess, in a two stage argument. The first stage compares the relationship between creditors and landowners in Argentina and Australia to explain the differing fates of the landowning class. The second stage then shows how these differing fates affected the subsequent process of economic development. This process in turn forces a reassessment of the theoretical assumptions that have guided the analyses criticized here. These theories, of course, have practical contemporary significance. The role foreign lenders and debt play in development--surely an increasing concern today--is poorly understood. Argentina and Australia's differing experiences shed interesting light on the current debt crisis, including appropriate roles for the International Monetary Fund, state economic intervention, and the question of debt relief.

SOURCES OF DIVERGENCE BETWEEN AUSTRALIA AND ARGENTINA

Two omissions and one common assumption deriving from theoretical predispositions reinforce the tendency of most comparative studies to explain Australian development on the basis of workers' strength. First, following analysts of "informal empire" (Gallagher and Robinson, 1953; Ferns, 1953), these studies typically assimilate Argentina's situation of formal independence but great economic dependence on Britain with Australia's situation of local self governance and economic dependence, omitting the political advantages accruing to Argentina by virtue of its independence. Second, these studies largely overlook the influence both countries' enormous foreign debts had on their respective development and politics, or, when they acknowledge lending, place lenders firmly in the landowners' camp. Finally, these studies all have a common theoretically based assumption that rural elites (and the rarely mentioned foreign lenders) have interests unavoidably producing underdevelopment. Obscuring the role fo foreign lenders, and homogenizing both lenders and landholders, these studies fail altogether to consider the possibility that differences between Australia and Argentina emerged at least in part because of the different economic and political roles foreign lenders played in the two countries.

While these analysts disagree on precisely when Argentina and Australia began diverging, they all see divergence as a function of political and economic attacks on large landowners by other classes. This view associates intensification of production--development--with smallholding and with strong labor movements, and with the rise of urban manufacturing. Development thus can only occur when smallholders and workers successfully challenge the power of rural elites and their financial allies, for rural elites are presumed to be antagonistic to urban manufacturing and reluctant to invest in capitalist agriculture. Though we will elaborate on this below, it is sufficient here to note that while this may be true for rentier landlords, it is not clear why it should be true for owner-operators, including those producing on a large scale. As producers, landowners' interests may, but do not necessarily impede urban development, and by no means are inconsistent with agricultural development. Let us examine three typical arguments.

Dyster (1979) claims the two countries diverged in the early nineteenth century when a mercantile class oriented to domestic consumption emerged in Australia but not Argentina. This trading class prevented Australian landowners from repressing workers, and forced landowners to replace convict labor with free immigrant workers. Because these merchants profited from workers' consumption, they strove to keep wages up and link rural prosperity with domestic markets, thus preventing disarticulation in the domestic economy.

Both Moran (1970), and to a more limited extent Senghaas (1985), attribute divergence to the differing policies of the Australian Labor Party and the Argentine Uni¢n C¡vica Radical in the early twentieth century. For Moran (1970:79-85), the Labor Party and its sometime Liberal allies pursued domestically oriented industrialization behind a range of protectionist devices, while the Radicals eschewed tariffs and thus industrialization. Protected industry created the bases for political compromise and coalition in Australia; its absence led to confrontation and zero-sum politics in Argentina.

Senghaas (1985:46-53) echoes Moran, though his general theoretical argument also points to the shift to intensive production by smallholding family farmers in Australia as an additional decisive difference from Argentina. This shift also enlarged the rural market available to Australian domestic manufacturers. Australian development thus occurred because classes or groups--Dyster's merchants, Moran's Labor Party, Senghaas' family farmers--arose to oppose large holders. In Argentina, landowners' interests prevailed because the Radicals' "economic policies were influenced, if not guided, by men associated with the interests of the landed exporters" (Moran 1970:87).

By focussing on the efforts of groups either potentially or actively opposed to landowners, and ignoring foreign lenders, these analyses look simply to the absolute political strength of opposition groups, and not their political power relative to that of landowners. After all, though much is made of Australian Labor, graziers did decisively crush unions in the 1890s, and the Labor Party governed only a total of six years before World War I conscription issues tore it apart. Focussing on Australian Labor's absolute strength not only exaggerates that strength but also hides an important question: why were Australian graziers politically weaker than their Argentinean counterparts, the estancieros? The answer: foreign creditors contributed decisively to Australian Labor's ultimate victory by weakening the graziers who otherwise might have defeated Labor as successfully and easily as Argentinean estancieros defeated their own workers.

The external debts of both Argentina and the Australian colonies taken as a whole were larger than their Gross Domestic Product in the 1890s and 1900s, and the ratio of debt service to GDP approximates that of current day Brazil or Mexico. Landowners owed about one-quarter of this debt in each country, while public debt accounted for roughly half (Butlin, 1962; Peters, 1934; Stone, 1972; World Bank, 1986). The analyses that do mention lenders (Ehrensaft and Armstrong, 1978; Senghaas, 1985) typically assume that lenders' interest in forcing repayment conflicts with a country's ability to develop because it represents an extraction of resources. Thus the stronger foreign creditors are, the less likely it is development will occur. But our cases suggest this abstract view is mistaken. The structure of creditor-debtor relations rivals the size of debt in significance, for foreign lenders' effects on development depend on the specific forms foreign investment takes. As we will see, landowner debt was structured differently in Australia and Argentina in ways that strengthened Argentina landowners in their fights with private creditors; while Argentina's formal independence strengthened the state in its fights with public creditors.

Australia and Argentina's different political regimes made foreign capital stronger in Australia. The local self-government granted to the six colonial states of Australia gave them only a limited political autonomy with respect to "foreign" (i.e. metropolitan) creditors. The Crown reserved the right to invalidate colonial laws it found repugnant, while the Bank of England retained firm control over Sterling, the currency used in the colonies. Argentina was independent; controlling its currency and having access to competing capital markets gave Argentine public and private debtors an advantage in dealings with their creditors. The absence of these advantages significantly enhanced foreign lenders' power in Australia.

But in turn, to understand large landholders' relations with foreign lenders means approaching estancieros and graziers as productive capitalists. Landowners borrowed precisely because they were behaving like productive capitalists. These studies all make implicit and explicit theoretical claims about landowning classes' propensity to impede development in pursuit of their own interests, largely because they see landowners first and foremost as rent-seeking landlords, and not as market- oriented productive capitalists. In the tradition of arguments advanced by W. A. Lewis (1954), A. Emmanuel (1974), and Samir Amin (1974), analyses of Australia and Argentina presume that the equitable distribution of income associated with smallholding encourages development by intensifying agricultural production. In turn this provides a market for domestically produced goods through increased wages and rural incomes. Overall intensification of production, an increase in productivity per unit labor, constitutes the essence of development for this line of thought, and without intensified agricultural production, industrial production has no captive local market and so remains stagnant and unconnected to the domestic economy. But landholding rural elites, best exemplified by those in Uruguay for Senghaas (1985:151), simply have no need to intensify production, for it is cheaper and easier to lower costs than to invest in intensification. Dyster (1979:6) concurs:

The magnates of Argentina...saw labor and land simply as costs that must be minimized so as to enlarge the margin of profit won from producing for non-Argentine consumption.

Large landowners thus are content with extensive production. Foreign capital, for its part, is happy to buy and market their cheaply produced agricultural goods.

This characterization of large landowners rests in part on an unwarranted comparison with rentier landlords elsewhere in Latin America. A variety of theoretical analyses, exemplified by Samir Amin (1974:ch. 2), support Senghaas and Dyster's assumption that rentier landlords have no immediate interest in intensification because they extract surplus from direct producers--peasants, sharecroppers, debt peons--in the forms of rent and interest. Because they are shielded from market forces by the relatively fixed form in which they receive income, their survival and reproduction as a class does not depend on a constant intensification of production. Declining prices for whatever their renters produce does not necessarily affect rentiers' claims, and so they continue to invest in more land--in more claims to surplus in the form of rent--rather than in improvements that increase productivity.(2) Furthermore, while their tenants might react to declining prices by intensification, their efforts might be hampered by the landlord's ability to extract rents--an unpredictable factor that depends on the degree of competition for land. In Australia and Argentina landowners were not rentiers, but entrepreneurs who received the bulk of their income as profit. Faced with declining profits, such entrepreneurs might very well react by trying to minimize costs, as Dyster suggests. But there is no reason to suspect that they would not also try to intensify production by increasing productivity, or shifting to higher value added products, so as to increase or maintain their profits. In short, intensification and its contribution to development were not merely the prerogative of the classes in opposition to largeholders in Australia and Argentina. Contrary to what Senghaas and Dyster argue, the historical record shows that Argentine and Australian landowners intensified production to a surprising degree, borrowing considerable sums overseas to finance this intensification. In both cases borrowing by landowners created specific institutional and legal relationships between them and their foreign creditors. In turn, these relationships determined the degree to which landowners retained political and economic power when the crises of the 1890s pummelled both societies.

AUSTRALIAN GRAZIERS, FOREIGN CAPITAL, AND LAND

Owners' need to borrow money to buy land was the key link between landowners and lenders, and the key difference between Argentine and Australian landowners is that Australian graziers were forced to buy their land under circumstances not quite of their own making. The various Australian colonial states had managed lands the Crown formally owned, taking possession of these crown lands when local self-government was granted in the mid 1850s. Relatively little land was sold at first, for wool growers preferred to squat on unauthorized grazing land until their investments in cross bred sheep made them desire longer term control of the land. Then graziers leased land from the Crown in a practice that legitimized their former occupancy through squatting. By the 1850s the tenure of these leases and the rights they conferred were just short of freehold, encouraging graziers to make small investments to improve productivity (Roberts, 1924; McMichael, 1984).

The gold rushes of the 1850s drew large numbers of immigrants to Australia who lacked the capital needed to make the transition to mining quartz gold when alluvial gold petered out. Agitation by unemployed miners, by gold-created professionals and by the merchants Dyster alludes to led to a number of Land Acts in Victoria and New South Wales in the 1860s (McMichael, 1984; Wells, 1986). The Land Acts opened leased land to outright purchase, in the hope that individuals and the unemployed would establish family farms and so relieve urban unemployment and its consequent political tensions. Instead, as virtually all commentators agree, squatters locked up the land through strategic purchases, bribery, and fraud, and used their control of the Legislatures' upper houses to impede efforts to reform the Land Acts in ways favorable to smallholders. Clearly at this juncture Australian landowners were capable of mastering popular pressures in so far as it affected their livelihood, and indeed may have welcomed the chance to get freehold. But in mastering the masses, they also sold themselves to their future masters.

The Land Acts forced pastoralists to buy up huge chunks of land in order to protect improvements they had made and to control water sources. Compelled to buy, they in most cases also were compelled to mortgage, using the land they purchased as collateral. And if they were to borrow to buy land, then they might as well borrow to fence it, improve its productivity, and thus reduce the weight of debt as a fixed cost (Butlin, 1964:77, 93). The cost of fencing and the amount of land that needed to be purchased exceeded graziers' means individually and as a group (Bailey, 1966:52-3; Butlin, 1962:60). They bought about 25 million scattered acres--an area roughly the size of Virginia--in New South Wales alone in the 1870s, using œ55 million borrowed from British and Anglo-Australia pastoral finance companies, and secured by their mortgages (Bailey, 1966:55-56). Since creditors typically held the actual lease or deed as security, indebted graziers could be chucked out at will.

The colonial states encouraged this process. At land auctions they set a high minimum selling price, which assured both large land sale revenues and graziers' need to borrow. These land sale receipts were then used to service the foreign debt incurred to build railways. Railways vastly enlarged the land area available for grazing, for the small scale and high costs of ox-cart transportation had sharply limited expansion of wool production (Butlin, 1962:299-320). Railways thus opened more land for sale, and raised the value of adjacent lands. Both allowed graziers to increase their debt as the value of their collateral increased. The Land Acts thus created a financial pyramid: the state forced graziers to buy land, used land sale revenue to service the debt incurred building railroads, used railroads to open new land for use and sale, and borrowed more money to build more railways to open more land for sale, thus creating more revenue.

But this pyramid's ultimate foundation was the price of wool. The land graziers had mortgaged only had value in relation to the value of the wool production occurring on top of it. So the value of the land graziers used as collateral fluctuated with wool prices. Furthermore, wool sales provided graziers with the cash that serviced debt. Wool prices were at their peak when graziers contracted the bulk of their debt in the 1870s and early 1880s. But British wool consumption slowed in the late 1880s, and by 1894 wool prices were 63 percent of 1870 prices (Clapham, 1907:271). When wool prices began to fall, the pyramid's foundation crumbled. Hoping to offset declining wool prices with increased production, graziers actually increased their borrowing during the late 1880s. On ten representative sheep stations funded by the Australian Mortgage Land and Finance company the debt per sheep roughly doubled during the 1880s (Bailey, 1966:112). But this individually rational strategy was collectively irrational, for it increased the supply of wool faster than foreign demand. Though short term advances doubled, and long term investment increased 75 percent between 1880 and 1887, falling prices limited the increase in graziers' net profits to only 10 percent. Consequently, interest claimed an ever larger share of the value of Australian wool production, rising from 20 percent in 1881 to 40 percent in 1887. This interest driven squeeze on profits motivated some graziers, particularly in Victoria, to intensify production by switching into meat and dairy production (Bailey, 1966:108-110, 147-9). But falling wool prices trapped the majority of pastoral entrepreneurs between declining receipts and growing debt obligations. Whether or not graziers desired intensification, their debt burden blocked any self-financed change in production. Meanwhile, their creditors' difficulties prevented any externally financed change. Australian Mortgage Land and Finance, a typical finance firm, saw its rate of return drop 40 percent between 1880 and 1890, as falling wool prices shrank the pie from which it ate (Bailey, 1966:121-122). Falling land prices made it impossible for these finance companies and banks to liquidate profitably their holdings and invest elsewhere, as New South Wales' Chief Statistician noted:

advances had been made against stock and stations on the basis of values existing prior to 1884, and in 1889 these values had to a great extent disappeared. [T]he banks found themselves in possession of a great number of pastoral holdings, which could not be disposed of except at prices much below the advances made against them; these the banks were compelled to work as if they were their own property (Coghlan, 1918:1644).

Unable to sell out, land finance firms foreclosed or imposed a supervision amounting to foreclosure over the properties they held paper on. They hoped through rationalization of production and elimination of graziers' "profit" to maintain the largest possible return on the capital they had lent out (Butlin, 1950; Bailey, 1966:82-83, 114).

Thus from being largely individually and domestically owned and managed enterprises, sheep stations increasingly became foreign bank or corporately controlled businesses. The trend towards elimination of Australian graziers was exaggerated in newer areas of exploitation, like New South Wales' Western Division, because there had been less time for individuals to recoup the larger investments this more marginal land required. As a percentage of owners, individuals represented one third fewer leases in the Western Division than they did in the Eastern by 1889. Even where individual owners or small groups of owners persisted, banks or financial companies typically held legal title to their lease or land as security (Butlin, 1950:94-95; Cain, 1961:200; Cain, 1966). This effectively proletarianized them, turning them into managers of properties they had formerly owned, and subjecting them to the scrutiny of company pastoral inspectors (McMichael, 1984:231-232).

Increased foreclosure of and pressure on graziers weakened their political power. Because graziers were large landholders they could not make a credible populist style response to creditor pressures. Politically their creditors were their class allies; workers and the few small farmers their class enemies. Similarly, a nationalist alliance with workers against creditors was also unlikely. Graziers did not consider themselves 'Australian' (Hancock, 1964). And practically, pressure to increase profits undercut any basis for accommodation between owners and the unions their workers formed in the last half of the 1880s. Owners needed dramatic increases in productivity to stay profitable, and their consequent pressure on workers accelerated unionization. These unions, in turn, wanted to wrest managerial control away from owners (Spence, 1911; Sutcliffe, 1921; Fitzpatrick, 1969). Graziers chose to side with fellow capitalists rather than rely on any nascent Australian nationalism. With the help of their financial backers (and perhaps of British capital in general [Coghlan, 1918:1579-1599]) graziers easily defeated general strikes in 1890 and 1891. But their success only channeled worker efforts into politics. Here graziers' elimination and their creditors' dilemma weakened the ability of the pastoral productive and financial complex to oppose the Labor Parties when they emerged after the general strikes of the early 1890s.

Despite the formal male suffrage enacted along with self- government in the 1850s, graziers had controlled their rural legislative districts by using property and residential qualifications to disfranchise their migratory work force. But rural Labor majorities emerged from the combination of declining numbers of graziers and from workers' increasing social alienation from rural corporate employers and growing political organization. In turn, elimination of pastoral entrepreneurs reduced foreign creditors' ability to make alliances with local class fractions, decreasing their influence in domestic politics.

In the absence of a clearly dominant domestic class able to guarantee their various loans, foreign creditors' own unity disintegrated into sauve qui peut. Those holding public debt split from those holding graziers' mortgages, and both searched for allies other than graziers. City of London financiers who sold or held the bulk of public debt tried to assure the integrity of that debt through colonial government budget surpluses. Thus in New South Wales, they made a faustian bargain with the neonate Labor Party and import merchants in order to pass the land and income taxes needed to balance the budget. While these taxes made public debt service possible, they further weakened graziers and the largely London chartered, but Scottish funded financial institutions holding their mortgages (Bailey, 1966:62-66). The price for Labor support in NSW was acquiescence in electoral reforms enlarging the real enfranchisement of shearers and station hands in rural areas, which increased Labor's political power. Rather the opposite occurred in Victoria, where an income tax was passed but no land tax. Landowners were more diversified than in NSW, and so less pressured by the fall in wool prices. Equally important, much of Victorian pastoral finance came from locally controlled capital. Consequently, in Victoria a domestically centered coalition emerged that was willing to confront City of London lenders; those lenders in response prevented new issues of Victorian debt in London markets. Meantime these domestic pastoral finance companies allied with family farmers to increase state aid to buyers of pastoral land and raise tariffs on agricultural products. They hoped to liquidate some of the capital locked up in grazing land while shifting the cost of doing so to urban groups. But to the extent these programs succeeded they eliminated more graziers while isolating the remainder from potential urban allies.

Unable to come to any agreement on whose loans should be sacrificed, foreign creditors instead threw their weight behind efforts to Federate the six Australian colonies. They hoped this new Dominion would be able simultaneously to guarantee foreign loans and contain the increasingly powerful Labor parties. Fears of foreign invasions, manufacturers' desires for a unified continental market, and nationalism combined to make Federation a reality in 1901, after ten years of grazier political isolation and foreclosure. But since these efforts on behalf of Federation were closely tied up with the process of intensification, discussion of them must wait until we have examined Argentinean landowners' relations with their creditors.

ARGENTINE ESTANCIEROS, FOREIGN CAPITAL, AND LAND

The form and scale of Argentine borrowing differed significantly from Australian, allowing Argentine landowners largely to escape the wholesale foreclosure visited upon their Australian counterparts in the late 1880s and 1890s. Where Australian graziers were forced to buy their land, Argentine landowners by and large received their land as outright grants or at prices far below the typical minimum auction price in Australia. Cheap land reduced estancieros' need to borrow. Where Australian graziers' debt took the form of mortgages, estancieros' debt was held as more easily devalued bonds.

Both the initial absence of any stable government after independence in 1816 and the consolidation of authoritarian rule after 1832 enabled landowners to acquire land cheaply. While the English Crown was able to enforce at least the principle of state ownership, forcing Australian squatters first to lease and then to buy land, a succession of Argentine regimes found it impossible to control public lands. The political and administrative weaknesses of the post-independence state allowed estancieros to turn squatting into freehold. After General Manuel Rosas consolidated his regime in 1832, he retained landowners' loyalty by freely dispensing land, and used state land grants in lieu of cash payments (Zimmerman, 1945:11-15). The return of civil war in the 1850s saw both sides alienate land in efforts to buy landowners' support. Finally, the victorious Republic financed anti-Indian campaigns in 1878/79 with bonds redeemable in land at a real cost of approximately 3 pence per acre (Scobie, 1964:117-118). Estancieros acquired roughly double the amount of land NSW graziers bought, for a fraction of the price. Thus from the outset they avoided the bulk of the debt that in Australia allowed foreign capital to engross pastoralists.

While Argentine wool growers did not have to borrow to get land, like their Australian cousins they did need to borrow in order to finance improvements. Britain's mid-century repeal of the Corn Laws and Navigation Acts opened to any producer a market that then absorbed half of world exports. To compete with Australian producers who were aggressively borrowing to fence, create water supplies, etc., Argentine wool producers also began fencing and improving in the 1850s (Ferrer, 1964:51; Murphy, 1987). To match the rush of investment in Australia in the 1870s and 1880s, they issued c‚dula, state backed mortgage bonds. As with land acquisition, this particular form of borrowing money shielded them from destruction by foreign lenders. Provincial banks gave landowners c‚dula equal to half the value of the land owners mortgaged to the bank. Owners sold c‚dula in the open market, via British financial intermediaries, to get the gold or convertible currency they needed to invest in fencing, improved pasturage, new land, or whatever. Argentine provincial banks paid interest on the c‚dula in fixed amounts of paper pesos, so the buyer of the c‚dula essentially was buying a paper denominated state bond (Williams 1920:75, 79). Landowners could retire their mortgage by offering the mortgagee bank either convertible currency or c‚dula equal to the amount they had borrowed. The banks in turn financed interest payments on outstanding c‚dula by using convertible currency to buy paper notes or by reissuing the c‚dula.

The Banco Hipotecario de la Provincia de Buenos Aires issued the first c‚dula in 1872, but very few c‚dula were issued before 1875, and even fewer found their way overseas. Between 1875 and 1886 76.5 million paper pesos of c‚dula were issued (Ferns, 1960:370-371). Formation of the Banco Hipotecario Nacional and a set of satellite provincial banks inaugurated c‚dula's entry into the formal London bond market with a virtual explosion of sales to British rentiers in 1886. By the time the 1890 Baring Bros. bankruptcy closed the London market to Argentine loans, the Banco Nacional had sold c‚dula worth 81.7 million paper pesos; provincial banks, including that of Buenos Aires, another 230 to 270 million paper pesos worth. These sales realized approximately œ 34 million in less than five years, mostly from British lenders (Williams, 1924:81-85; Peters, 1934:45).

Rather than meet their c‚dula obligations directly, by paying off their mortgages or indirectly by paying taxes so the state banks could meet their interest obligations, estancieros chose and were able to destroy c‚dulas' value by inflating the paper currency. The value of the stream of paper currency a c‚dula generated determined its market "value" in hard currency, so as the paper peso depreciated so did a given c‚dula's market value. Inflation allowed landowners to pay off their mortgage by using export earned Sterling to buy back devalued paper c‚dula.

Unlike Australian graziers, landowners could inflate the paper currency because they obtained direct control over banks after General Roca's presidency, 1880-1886. Two related deterrents to inflation had existed during Roca's presidency. First, Roca and his finance minister both limited the number of note issuing banks and tightly supervised them to maintain the paper peso's convertibility. Second, Roca's partisans desired but had not yet begun to sell large numbers of c‚dula abroad. To make c‚dula saleable, they needed to demonstrate the stability and convertibility of paper pesos. This desire combined with Roca's tight supervision to prevent inflation. But Roca's successor, Celman, was less powerful, and the incentives for maintaining convertibility disappeared as more and more c‚dula were sold. In an effort to expand rural credit, Celman promulgated the Law of Guaranteed Banks in 1887. This permitted banks to issue paper pesos providing they arranged for a gold reserve to back their notes (Williams, 1924:ch. 5). The national treasury helped these banks acquire gold, giving them treasury notes paying 4 1/2 percent interest to sell, generally abroad, for gold or Sterling. The gold thus acquired was to be deposited in the Banco Nacional to provide a specie backing for the Guarantee Banks' paper emissions. The Guarantee Banks were forbidden to issue more paper than they had gold deposited with the national government. In principle this ought to have led to a perfectly stable paper currency, but practically a rapid depreciation in the value of the paper peso resulted. A combination of landowners and corrupt and corruptible government officials controlled the provincial Guarantee Banks, and landowners used their direct control over the creation of paper currency to issue unsecured loans for themselves, while simultaneously failing to deposit any specie backing with the Banco Nacional (Ferns, 1960:399). In the absence of centrally imposed discipline, note issuing became a Prisoner's Dilemma game. Those who had already gained from c‚dula sales had many incentives to defect--to inflate paper pesos and so reduce their mortgage payments--and few to cooperate--to constrain note issue until all estancieros had benefitted from c‚dula sales.

By June 1890 inflation had created a 60 percent discount off c‚dulas' face value. As Ferns (1960:425) says, "The money invested in c‚dulas was substantially lost," for by 1900 some 150 million paper pesos of c‚dula were quoted as low as 9 percent of face value (Williams, 1924:122). The only demand for c‚dula came from landowners buying them up to repay their mortgages, and from speculators. Inflation thus allowed Argentine landowners to avoid foreclosure by simply destroying foreign creditors' claims on their profits.

Argentine estancieros thus avoided being foreclosed like their Australian counterparts. Though both depended on foreign loans to capitalize their export industry in the late 1880s, the form both debt and financial intermediation took put Argentine landowners in a considerably stronger position. Privately, their direct mortgagees were banks they controlled, rather than the London chartered firms Australian graziers faced. Because their creditors' claim on their profits was denominated in paper currency, estancieros' control over currency emissions allowed them to devalue those claims. Australian graziers could not affect currency emission by the Bank of England, and in any case their creditors had claims expressed in sterling. Operating from a considerably weaker position than in Australia, foreign creditors lost considerably more money in Argentina. Where c‚dula holders lost their money, graziers' creditors eventually recovered part of theirs when intensification occurred in Australia. With regard to public debt, the Australian colonies all enforced the taxes and retrenchment necessary to continued debt service, even where this weakened or eliminated rural producers. In contrast, Argentina was able to reduce and delay payment on both principle and interest through reschedulings in 1890 and 1893. By threatening to shift its future debt emissions variously among London, Paris, Berlin and New York, Argentina played its multinational creditors, including the many foreign railroads operating in Argentina, against one another (Jones, no date).(3) Rather than having creditors ally with some domestic groups to the detriment of others, Argentina handily defeated its creditors. Provincial banks' c‚dula obligations were eventually absorbed by the Argentine state at significant discounts. Labor's triumph in Australia thus owes much to the actions of the foreign lenders it vituperatively denounced, and to the Crown from which it desired a parting of ways.

INTENSIFICATION OF PRODUCTION IN AUSTRALIA

As noted above, falling wool prices motivated Australian graziers and their mortgagees to try to shift production from wool to more intensive meat and dairy production. Making this transition required fresh investments graziers could not, and banks and finance companies would not make. But if finance companies had no desire to make the additional investments needed to intensify production themselves, they did desire to liquidate their landholdings at prices above those low wool prices established. They had two ways of doing this. First, a company itself could initiate a more intensive style of production, causing land values to rise in proportion to the increased production occurring on it. But this involved precisely the additional investment the companies wished, for the most part, to avoid. Indeed, 1891-1894 gross pastoral investment fell 50 percent from its average level 1888-1891; 1890-1892 saw British disinvestment of œ 1.14 million, causing a 90 percent fall in net pastoral investment (Butlin, 1962:20, 194, 424). Some finance companies did try this first route, either planting wheat or breeding sheep and cattle for meat. The competitive pressure declining wheat prices exerted and competition from New Zealand and Argentine frozen meat led most to favor a second route (Friedmann, 1978).

This route involved settling family farmers on former pasturage. These farmers would be willing to pay prices reflecting the value they expected to get from their intensive use of the land rather than the low value wool production established. Here too creditors faced a difficulty, for these families had not the money to buy up subdivided sheep runs. But this difficulty was amenable to a political solution. Domestic banks and finance companies pressured the colonial states into supporting their efforts to revalorize some of the vast tracts of foreclosed pastoral property by supplying buyers with credit. Generally these state initiatives took the form of Cr‚dit Foncier systems, in which the state provided low interest loans to farmers buying pastoral land. In South Australia and Victoria more local capital was tied up in pastoral land than in New South Wales, and these colonies consequently established larger credit systems and earlier. Queensland also made similar efforts to revalorize investments that had been made in plantation style sugar production. By building state and cooperative mills and subsidizing land purchases, Queensland created the conditions needed for family scale sugar production (Dunsdorfs, 1956; Fogarty, 1966; Glynn, 1967; Walker, 1970; Shlomowitz, 1977). But all these cr‚dit systems were limited by the colonial states' ongoing fiscal crises Coghlan (1918:2067). With pastoral prosperity gone, land sale revenue dried up, making it difficult for the various states to meet their own debt payments and maintain essential services. All ran budget deficits in the 1890s despite severe retrenchments. Funding cr‚dit systems would involve more overseas borrowing and thus an expansion of the current budget cum debt crises.

Unsurprisingly, City of London lenders took a dim view of these efforts to revalorize the pastoral property that smaller, Scottish funded institutions largely held, afraid they would come at the expense of payment on the public debt. The Economist feared cr‚dit bonds used "to enable the Government to repurchase land at exorbitant prices," (Economist 3 January 1892, pp. 9-10) would end up as valueless and unmarketable as Argentine c‚dula (Economist 4 August 1894, p. 953).

All these imitations of the Cr‚dit Foncier system have at bottom two aims, viz., 1st, the maintenance of the reputed value of land, and 2nd, the introduction of fresh British capital. Australian land is to retain a fictitious value by the help of the British investor. Otherwise, there is no necessity for the intervention of the State in mortgage business (Economist 9 February 1895, p. 185).

Intensification of agricultural production thus waited on a political solution--Federation. City and Scottish lenders could unite in support of Federation because it promised to save both public and private debts. For the City lenders, Federation promised a national government able to contain the growing strength of the "state" Labor Parties the City feared might initiate default, and a guarantor able to tap national resources to cover any unintentional "state" default. For Scottish funded pastoral lenders, Federation, by reestablishing the credit of the newly minted states, would allow those states to borrow anew. They then could subsidize the liquidation of millions of acres of pastoral land via sales to wheat and other family farmers. Federation thus created the political preconditions for agricultural intensification, enabling the various states to settle thousands of farmers on former grazing lands (Schwartz, 1989:ch. 3).

These family farms rapidly mechanized agriculture (McLean, 1971, 1973, 1981). For example the value of farm machinery in use in Victoria rose from œ 18.5 per unit labour in 1900/1 (virtually identical to the 1880/1 figure) to œ 38.3 per unit labour in 1910/1 despite a 21 percent drop in machine prices. The market these family farms provided for producers of both consumer goods and capital goods in the form of agricultural machinery broadened the market available to Australian manufacturers, hastening industrial development. Essentially, in this period Australia under went what is called Import Substitution Industrialization (ISI) by Latin Americanists. Just as in Latin America, a coalition of urban labor and domestic manufacturers used a highly interventionist state to regulate wages through juridicized collective bargaining, to protect the domestic market using tariffs and anti-trust legislation, and to fund investment with agricultural exports. For their part, the new family farmers were willing to accept tariff policies redistributing income from them to urban areas. During the period in which key legislation passed, farmers still sold much of their production in Australian, not export, markets; for example Australia was not a net cheese exporter until 1910. Increased wages and a growing industrial work force meant increased consumption of agricultural products. Thus single member districting and winner take all elections often led farmers to side with Labor, for the location of their markets and a desire to subdivide large landowners out of existence outweighed their dislike of the tariff. Only when export markets for wheat and dairy became more important than domestic markets did small farmers begin to ally with the remaining graziers. By 1911, 64 percent of Victorian and 33.9 percent of New South Wales agricultural production was exported, compared to about 3 percent and 2.7 percent, respectively, in 1890 (Victorian Statistical Register 1914; Official Yearbook of NSW, 1905:342, 1915:787). Large landholders thus were politically isolated in the early years of the 1900s, and later found themselves forced to merge increasingly with small holders to express their interests politically. A distinct Country Party uniting rural interests did not emerge until the introduction of a preferential voting system in 1919 (Graham, 1966). Australian manufacturers thus had a generation's head start on Argentine manufacturers, for World War I and the Depression consolidated an Australian capital goods industry, even as those two events stimulated Argentina's first efforts at ISI under Per¢n.

ARGENTINEAN LANDOWNERS AND INTENSIFICATION OF PRODUCTION

The political and economic consequences of Argentine and Australian landowners' different situations show their most profound impact in the different form intensification took in Argentina. In Australia, banks and land finance companies' initial advantage in dominating the pastoral sector turned into a disadvantage when they found themselves saddled with illiquid and low profit property in the 1890s. The only way they could extricate their investment was to support a political solution leading to intensification: Federation to restore public credit; subdivision and sale of illiquid properties to publicly subsidized smallholding farmers; liquidation of Australian large holders as a coherent class. Argentine landowners, in contrast, were not foreclosed. Estancieros reacted to declining profits by voiding their debts and undertaking a search, on their own, for new products and production methods capable of returning higher profits than hide harvesting or wool. In Australia, the switch to meat exports came more than ten years after freezing technology emerged, because it had to wait for a political solution to the problem of capital locked up in land.(4) In Argentina, by contrast, landowners' easy victory over private foreign capital allowed them to begin changing their production profile and exports in the late 1880s and early 1890s.

Argentine landowners responded to declining prices and market opportunities by steadily climbing to higher valued added products, just as any entrepreneur might. Primarily exporters of hides and wool in the 1880s, they turned progressively to live and canned meat exports (mostly mutton) in the 1890s, and then to higher quality frozen meats and chilled beef by World War I. (See Table 1). Between 1887 and 1907 frozen beef rose from nil to 51 percent of meat exports by value, while jerked beef and meat extract fell from 50 to 11 percent (Crossley and Greenhill, 1977:294). Landowners constructed elaborate and efficient production systems rotating wheat, alfalfa and beef cattle on their land. Retaining control of beef production, landowners rented out their land to immigrant Italian families. These tenant farmers grew wheat for three to five years, planted alfalfa in their last year, and then moved on to a different piece of land. Cattle then fed on the alfalfa for five years. By 1914 16 million acres were under wheat. Yoked to wheat, alfalfa acreage expanded from two million acres in 1895 to 19 million by 1914. This rotation maximized yields of each product and used the land much more intensively than beef production alone would have, for alfalfa increased the stock carrying capacity of the land by a factor of six.

Though they subcontracted wheat production, landowners made significant investments in this process of intensification. For example, between 1888 and 1912 the number of windmill driven water wells increased from 237 to 69,598. Simultaneously, breeding for fatter, beefier shorthorn cattle raised the proportion of crossbreeds in Buenos Aires province to 90 percent (Whitbeck, 1926:231-232; Taylor, 1948:141). The contrast between Uruguayan and Argentine production reveals the extent to which Argentina managed to become the low cost, high efficiency producer of beef for world markets. By 1913, Uruguay still processed 72 percent of its cattle for hides, jerked beef, or beef extract--all low quality products, and approximately the same percentage as in Argentina twenty years earlier. Meanwhile Argentine beef was delivered to Buenos Aires docks at 60 percent of the cost of equivalent quality US beef to Chicago railheads (Whitbeck, 1926:231, 287; Denoon, 1985:107-112).

Table 1

Argentine Meat Exports by Type
Year:	1894	1914
Jerked Beef	42,838 tons	2,383 tons
Canned Meats	1,374 tons	13,590 tons
Live Animals	342,708 head	167,641 head
Frozen Mutton/Lamb	36,486 tons	58,688 tons
Frozen Beef	267 tons	328,278 tons
Chilled Beef	-0-	40,690 tons
Source: Denoon (1983).

Nonetheless, most analyses point to precisely this system as causing or continuing underdevelopment in Argentina, arguing that landowners' use of tenant farmers blocked development by preventing intensification of agriculture and depriving manufacturers of a market large enough to permit industrial development. The first reason clearly is mistaken on both empirical and theoretical grounds. The immigrant Italians who became tenants came to Argentina precisely because intensification occurred; in neighboring Uruguay the persistance of extensive stockraising caused a relative absence of immigration, tenants, and agriculture. The fact that tenants predominated rather than smallholders should not automatically block development. Tenants in and of themselves present no block to the mechanization of agriculture; quite the contrary. English agriculture had been heavily tenanted since the eighteenth century, and nonetheless became and remains highly developed, producing extremely high yields through 'industrial' agriculture. In Australia at least one-fifth of wheat growers were sharecroppers; in the non-south United States one-quarter of all farmers were full tenants during this period (Official Yearbook of NSW, 1909/10:198). One might argue that a quantitative difference turned into a qualitative difference, since about two thirds of Argentine farmers were tenants. Two factors, though, suggest that tenancy as an economic phenomenon was not a decisively regressive step for Argentine agriculture.

First, the alternative to tenancy was not more "capitalist" forms of agriculture. Generalizing from North America (and, by extension Australia), Harriet Friedmann (1978) has argued that family farms were better suited to absorbing the secular decline in wheat prices that occurred until 1896 than were "capitalist" forms of wheat farming, which were totally dependent on hired labor and constrained by the need to show a profit. She shows that in this period family farmers displaced capitalist forms of production everywhere that the state did not make extraordinary efforts to protect "capitalist" agriculture. The choice for Argentine agriculture was thus not between tenant and "capitalist" agriculture, but between family farmers who owned their land and family farmers who did not. Indeed, in some sense Argentine tenancy was a more "capitalist" form of agriculture than subsidized family farming in Australia, because the Argentine system permitted a market driven reallocation of land, labor and machines in contrast to the relatively immobile Australian system (Fogarty, 1981:417). This Argentine agriculture was as productive as Australian. In 1900 Argentine wheat production yielded 12.7 bushels per acre, surpassing the Australian yield of 8.6 bushels per acre and roughly double Uruguayan yields; in 1910 Australian and Argentine yields were roughly equal (Scobie, 1964:87; Mitchell, 1983:223-226; Rock, 1987:164).(5)

Second, Argentine wheat farmers and cattlemen did not resort to labor intensive solutions to production problems as both Dyster (1979:97) and Senghaas (1985:147, 150) assert, despite the presence of a surplus labor pool in the deep interior. Rather than mobilize the true peons of the deep interior for harvest labor, Argentine tenants and landowners alike preferred "golondrina"--northern Italians who returned to Italy after the harvest (Gallo, 1986:225-229, 275-278). Only when World War I forcibly interrupted the trans-Atlantic flow of Italians did Argentine landowners mobilize low wage interior labor for the harvest. Migratory and foreign, Golondrina were politically more docile, and thus more desirable than the technically enfranchised peons. But economically golondrinas were such a high cost solution to the problem of harvest labor that harvesting amounted to 60 percent of production costs for wheat farmers. Golondrinas received œ 40 to 50 for their four months work, which approximated Australian wage rates, and was about six times the peons' wage rate. Tenant farmers quite rationally responded to the high cost of harvest labor by substituting machine for human labor. While sown acreage and the number of machines expanded rapidly, the number of golondrina stayed fairly constant from 1890 to 1911. By 1914 œ 20 million worth of agricultural machinery, including 18,000 reapers, was in use; but half as many Australian farmers used virtually the same amount (CBCS, 1914:34; Scobie 1964:60-61, 81-82; Randall, 1978:90; Gallo, 1986:229-233). Why this disparity?

Estanciero and tenant production methods were not what limited agricultural development and blocked industrial development in Argentina. Political rather than economic consequences of large landowners' continued power acted more to limit development. Tenants' political weakness reduced their ability to invest. As in Australia,

the substantial mechanization of Argentine agriculture ultimately [was] amortized from the limited profits and savings of the colonists and tenant farmers (Scobie, 1964:82).

Both Australian smallholders and Argentine tenants faced rapacious grain merchants, monopolistic shippers, and flint- hearted creditors (Dunsdorfs, 1956; Scobie, 1964; Graham, 1966; Gravil, 1985). But Australian smallholders were able to temper the exactions of these intermediaries through political action. The space created by graziers' prior elimination combined with longstanding ties with neighbors and possession of the franchise to facilitate cooperative and populist initiatives. In contrast, the Argentine tenants confronting an entrenched estanciero class had no ties to specific areas, were frequently moved, and as first generation immigrants lacked the franchise. Both Argentine tenants and smallholders had little success with direct action. A number of smallholder revolts in 1893 in Santa Fe province were historically too early to garner support from tenants or urban workers; a tenant strike in 1912 dissipated in the face of promises to reform lease conditions and grain marketing (Gallo, 1976 and 1986). But tenants were unable to challenge consistently parasitic intermediaries. Short term credit carried interest rates running from 30-50 percent (Gravil, 1985:42; Gallo, 1986:ch. 9). In the absence of these drains, tenants undoubtedly would have mechanized even more than they did, perhaps to the levels Australian farmers achieved. To the exactions of intermediaries were added higher rents after 1900. In the area that most closely approximated Australia in terms of smallholding and industrial "backlinks," Santa Fe province, rent seems to have more than doubled between 1895 and 1914, while tenure periods halved (Gallo, 1986:104-105). This also reduced tenants' ability to invest, and to the extent that landowners consumed, rather than productively invested rents, reduced overall development in agriculture.

At this point we must consider whether the survival of large landholders also had economic effects that limited urban- industrial development. The analysts surveyed above (Ehrensaft and Armstrong, 1978; Dyster, 1981; Senghaas, 1985), following Amin (1974), would argue that industrial development depends on linkages arising from the flatter distribution of income associated with small landowners. Tenants would be unwilling to invest in housing and the accumulation of household goods, or in immovable capital goods for production, like wells. This decreased consumption narrowed the market available to urban manufacturers and so made industrial development more difficult. Senghaas (1985:146-151) provides the most explicit and theoretically informed argument that in Australia farmers provided a major 'middle-class' market which the tariff reserved for manufacturers. The relative success of local industry in Argentina's Santa Fe province, notable for its high proportion of smallholders, would seem to bear this out (Gallo, 1986:246-251). But it hard to see only demand-side effects as the sole cause of the significant divergence between Argentina and Australian manufacturing prior to World War I.

On the demand-side, in both societies the rapid growth of urban and rural population provoked wide industrialization in consumer goods production. In Argentina output and the number of factories doubled, and the number of workers more than doubled between 1895 and 1914, and both societies had roughly the same proportion of agricultural to industrial workers. But in Argentina industrial expansion took place almost entirely in artisanal shops--the average number of workers per factory was two-fifths the Australian average by 1914, largely because the Australian average had grown while the Argentine stayed flat. By 1913 Australian manufacturers had roughly twice as much installed horsepower per worker as Argentine, employed proportionate to population a third more industrial workers than did Argentine manufacturers, and had only slightly less capital invested in machinery and plant alone than Argentine manufacturers had invested in machinery, plant and land (OYBCWA, vd; Taylor, 1948:121; Gallo, 1970:7-11 and 1986:246-251). Only Argentine meat packing plants, which averaged over 2000 employees each, showed a degree of concentration and capitalization approaching Australian levels.

What distinguished Australian manufacturing from Argentine was a range of supply-side pressures forcing greater capitalization and mechanization on the part of Australian manufacturers. Legislation fixing relatively high minimum wages, encouraging unionization, and enforcing no strike-no lockout provisions made it rational, necessary and safe for Australian manufacturers to substitute capital for labor (Schwartz, 1989:ch. 4). These supply-side pressures were the result not of the proliferation of smallholders at graziers' expense, but rather the political opening creditors' actions created. The political concessions creditors exchanged for Labor's political support in the 1890s permitted a strong Labor Party to emerge after Australian Federation in 1900, while foreclosure blocked the emergence of a politically coherent "country" interest at the federal level (Schwartz, 1989:ch. 3). Both consequences allowed parties representing workers and manufacturers to unite to pass all manner of market distorting measures favoring themselves. The tariff most analysts point to was the least important of these, and one to which the Australian Labor Party only acceded rather late.

In contrast, politics produced no such supply-side pressures in Argentina; if anything they acted antagonistically to demand- side pressures. Urban workers, despite organizing by Anarchists, yearly trades union conferences after 1900, and several violent general strikes, were unable to force up wages to the levels Australians largely won through legislation. Judicious repression, concession and fraud maintained estancieros' political dominance through 1913, and this solid "country" interest marginalized both workers and manufacturers. Where Australian workers' alliance with foreign creditors won them electoral reforms in the 1890s, in Argentina immigrant workers and many of their employers, already disenfranchised at the federal level, lost even the municipal franchise by the end of the 1890s (Gallo, 1986:418-428). Estancieros' political survival also enabled them to shift the burden of debt service onto the urban 'popular' classes through imposts and tariffs, which removed any urban constituency for protectionist politics. The tax burden on workers and the urban middle classes, and their fears of a repetition of the 1887-97 inflation, caused their respective political leaderships adamantly to oppose new or increased tariffs when they came to power. Without tariffs, there was no way to link manufacturing growth to agricultural prosperity; without minimum wages owners had little reason to substitute machinery for labor; without industrial peace such investment was risky. The differences are most profoundly expressed in the beginning of Australian agricultural machinery exports to Argentina in this period.

CONCLUSIONS

Australia, Argentina, and creditors' legacies

Where foreign lenders liquidated large numbers of Australian graziers and then sold out to smallholders, estancieros successfully repudiated debt and then made a transition to mutton, beef, and wheat production. Argentine landowners' greater durability than Australian landowners thus was not simply a function of besting their own labor force but also one of besting foreign lenders. The Argentine state's relative domestic weakness compared to the colonial state in Australia permitted estancieros to acquire land without incurring as much debt as Australian graziers. Estancieros' relations with their creditors also gave them an advantage compared to graziers. Estancieros' mortgages were held by banks they controlled, while those banks in turn issued debt in the form of easily devalued paper peso denominated bonds. Those same banks could use their control over emission of paper pesos to inflate away creditors' claims. Australian graziers, in contrast, were mortgaged to London chartered institutions (using Scottish capital) with whom they usually had an arms length relationship, and control over the currency rested with the Bank of England. Finally foreign creditors' greater penetration of Australian society enabled them to make alliances with subordinate classes so as to secure fiscal stability and continued debt service. Argentine sovereignty and estanciero unity, itself a function of the relative absence of foreclosure, in contrast enabled an avoidance of debt service and in turn of taxes on estancieros.

If the story of graziers' defeat which most analyses present is misguided, was their presumption that large landholding had economic and political effects blocking development nonetheless true? Clearly in terms of agricultural development, most analyses are incorrect in assuming that largeholding prevented development. Both Argentine largeholders and their tenants significantly improved productivity and output. Evidence from New Zealand, where financially secure largeholders led the transition to a more productive agriculture based on mutton production, suggests that a financially unencumbered Australian grazier class would also have developed meat production and agriculture (Schwartz, 1989:ch. 5). Argentine and Australian largeholders behaved as producers, not rentiers, during the crucial period in which a transition from extensive to intensive production occurred. Only after the transition had occurred, when Argentine landowners were in a position to exploit their control over land tenancy, did they begin to behave as rentiers.

Only when we turn to industrial development does estancieros' survival have an effect. Estancieros' firm control of politics down to World War I significantly delayed industrial development, not so much because they were antagonistic to industrial development, but because they were indifferent. If they did not hinder industrial investment, they did nothing to encourage it either. In contrast, the reduction of Australian graziers' political power permitted workers and manufacturers to distort consciously markets in favor of industrial development. Later events reinforced this pattern. As the heady days of dynamic agricultural and pastoral expansion closed during the Great Depression of the 1930s, using agricultural exports as an engine of industrial growth became increasingly more difficult. Where Argentina reduced tariffs on British manufactures under the 1933 Roca-Runciman Pact in exchange for British imports of Argentine beef, Australia increased them, deepening its on-going industrial development. Per¢n's attempt, however inept, to industrialize Argentina along the lines of an "australian" model thus came not one, but two full generations late. By Per¢n's time, the window of opportunity permitting industrial development on the basis of agricultural exports had closed.

The wider implications of the Australian and Argentine experience

The differing fates of Argentine and Australian largeholders, and of Australia and Argentina, have theoretical and policy implications beyond these societies. As Argentina and Australia were 19th century developmental borrowers, the lessons that can be learned bear most directly on the developmental borrowers of the late 20th century, the "Newly Industrializing Countries" (NICs) like Mexico, Brazil, South Korea, Yugoslavia, and Argentina once more. Like Australia and Argentina with regard to wool in the 19th century, these countries borrowed to create competitive export industries; like Australia and Argentina, declining demand and export prices in the 1980s pushed the rate of return on those investments below the level needed to sustain simultaneously debt service, investment for growth, and consumption subsidies. What are the potential lessons?

First, Argentina's lesser degree of political subjection worked in ways opposite to that which both theorists of informal empire and some flavors of dependency would predict.(6) Though the notion of informal empire contains an implicit economic determinism that assimilates sovereign "neo-colonies" to formal colonies on the basis of similar economic structures, here the tail of Argentine sovereignty seems to have wagged the economic dog. And where some dependency theorists (Sunkel, 1972; Cardoso and Faletto, 1979) assume that political sovereignty creates a space in which nationalist economic policy can be pursued, Argentina's use of sovereignty to abuse its creditors seems to have resulted in less development than in "subjected" Australia.

Second, our analysis has suggested that we must look at landholders as producers and not as rentiers, and therefore at ways in which politics affected their patterns of investment. The easiest way to capture this lesson is to turn to the one comparative study (in many ways the best) that diverges from the mass analyzed above. Duncan and Fogarty (1985) do not see any fundamental divergence between Australia and Argentina during the period we analyse, though, to be fair, their analysis focuses largely on events after 1930. Rather, they see Australia's relative prosperity as resting on a fragile base of political practices that prevent rent-seeking social groups from distorting markets, particularly for the crucial mineral and agricultural export industries. They argue Argentine economic failure, in contrast, is a consequence of the distortions introduced by inflation and the Per¢nist project of soaking agriculture for industry's benefit. But put in these terms, it is clear that a significant divergence between Argentina and Australia had already occurred by the end of the 19th century. In both the debt crises of the 1890s went through two phases: in the first, capital sunk in investments that no longer could generate sufficient revenues or profits to cover both debt service and reinvestment was destroyed; in the second, capital liberated by this destruction was redeployed into more productive enterprises capable of generating both debt service and reinvestment funds. In this two step process, Argentina and Australia followed distinctly opposite paths.

Where the Argentine state and its landholding social base were willing to distort massively markets through inflation and default so as to protect their interests during the first phase, they happily allowed markets to take their course during the second phase. Argentine capital did redeploy from low productivity wool into higher productivity meat and grain production, but much of this investment involved the capture of tenants' rent, not profit. In contrast, the Australian colonies prior to federation were unable to protect domestic social groups, primarily graziers, from the consequences of overborrowing. In the first phase markets took their course and lenders foreclosed debtors. After federation, the Australian state used its newly constituted powers to distort wage and investment markets to the benefit of urban manufacturing. In the long run Australian manufacturing proved capable of generating high returns in the form of profit, however inefficient it may have been relative to world standards. Duncan and Fogarty's caution against government intervention thus seems one-sided. While governments can structure markets to reward rent seekers, markets can independently evolve around rent with equally pernicious effects. The lesson here is that governments may be better at picking who should win, after someone else has decided (and perhaps taken the blame for) who should lose. This does not imply that "markets" necessarily or efficiently decide who loses, for, as we saw above, everyone deployed political power to distort markets in defense of their claims on profits.

Though it is beyond this essay to investigate in depth current practices among the indebted NICs and their creditors, this contrast between Australia and Argentina suggests that it is better for states to let creditors destroy the weakest sectors during the first phase of a debt crisis, and only later intervene to direct investment into areas not just capable of generating large returns, but also of extracting them in the form of profit, not rent. Among the Latin American NICs the tendency has been to duplicate the Argentine experience. States have intervened to soften the impact of the first phase of the debt crisis through continued inflation, socialization of private enterprises' foreign debt, and through de facto defaults disguised as reschedulings. Only South Korea among the heavily indebted has practiced an Australian style destruction of inefficient firms during the first phase. Though there is no evidence yet of any massive redeployment of resources into more productive enterprises, particularly in Latin America, it should not be surprising that the South Korean state most resembles the colonial state in Australia in terms of its autonomy from domestic social groups, and that South Korea has borne its debt burden more easily than any of the Latin American countries so far. The penetration of Latin debtors' states by domestic social groups can only increase during the current period of democratization, suggesting that Argentina, and perhaps the other Latin American NICs, will continue to play "Argentina" to South Korea's "Australia."

ENDNOTES

(1) Here I use "Labor" and "Labor Party" for simplicity's sake, though none of the Australian colonial organizations, nor the Federal and state ones superceding them after Australian federation in 1901, actually were so titled officially. "Labor" in all cases will refer to the political party; "workers" and "unions" will be used to identify non-political groups or organizations in Australia.

(2) Two qualifications: a variety of social mechanisms exist to adjust these extractions when they cut into renters' ability to survive physically; not all production may be marketed, so declining prices again may not result in declining income. See Amin (1974) and Brenner (1977, 1986) for the clearest theoretical statements about landlord behavior with respect to development.

(3) Today, of course, the International Monetary Fund creates discipline among the various creditors, preventing Argentina and other debtors from playing one against the other. Todays' banks, as direct lenders rather than intermediaries like the nineteenth century investment houses, also have a greater interest in discipline.

(4) Statistics imply an early Australian lead in frozen meat that is unfounded. This lead emerged because of graziers' distress sales of sheep and cattle the land no longer could profitably carry. The cash sales brought the illiquid graziers was more valuable than the animals' future production. Argentine meat production was more systematic and business-like (Hanson, 1934; Crossley and Greenhill, 1977).

(5) Australian farmers typically faced harsher climactic conditions, though. For comparison, US yields in 1900 were 13.9 bu/acre and in 1910 were 14.4 bu/acre; Canadian yields averaged 13.2 bu/acre in 1901 and 14.9 bu/acre in 1911. US data from US Department of Commerce, (K445-485); Canadian from Urquhart and Buckley, (1965:351).

(6) This discussion should not be taken to imply that Australia, by virtue of its 'stronger' colonial state achieved a semiperipheral status in this period, while Argentina's weaker state consigned it to the periphery. Argentina and Australia's positions were roughly similar in this period, and many contemporary observers thought Argentina had better prospects. Both were 'semiperipheral,' especially compared to North and Black Africa, much of the rest of Latin America, and colonized Asia. Compared to these areas, the Argentine state had the requisite strength to begin some process of state-led industrial development; the point is that there was no social base for such a policy at that time.

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