Sources of Post-Independence Economic Instability
A. Plan of Investigation This investigation will answer the question: what were the sources of post- independence economic instability in Venezuela from 1830 to 1890? The most significant sources of instability impacting the economy in Venezuelan early national period were the fluctuating coffee prices, the credit crisis, and the ineffectual government. The scope of the research was the economy in Venezuela from approximately 1830 to 1890. This does not include political or social impacts on the country’s instability as a whole.
The research followed the process of reading books ND textbooks for tertiary and secondary source information on Venezuela, and primary sources such as laws which were relevant in the scope of the investigation. This topic is important for understanding how the history of Venezuela as a Spanish colony affected its economy for decades after independence. B. Summary of Evidence By the asses, although Venezuela had gained independence from Spain, the country faced more problems than had been solved. Venezuelan economy was mostly agriculturally based, and a lot of the economy rested on raw material export, similar to the colonial period economy.
According to Bonham and Holey, “Venezuelan agriculture [was] in general handicapped by adverse natural conditions, backward techniques, and low productivity’ (144). For example, there were agricultural advancements made in farming techniques that the farmers did not utilize, which made their production comparatively inefficient: “Venezuelan planters were very slow to adopt new methods or employ new tools. Indicative of this are the series of articles published in newspapers advocating improvements in pruning, fertilizers, planting, and harvesting.
The same ideas were being pushed in 1842 as had been advocated n the twenties” (Lombardi 102). In the late asses through the asses, Venezuela experienced a boom in the coffee industry, increasing production from approximately 12,000 pounds in the 1831-32 fiscal year to almost 40,000 pounds in the 1845-46 fiscal year (Lombardi 164-165). Although the price of coffee fluctuated anywhere from . 065 pesos per pound to . 125 pesos per pound, it was relatively profitable, so many planters invested increasing amounts of money in land, trees, and labor.
The “coffee barons” had to borrow money to buy capital, and usually ended up deeply in debt due to the unreliability of coffee- eased profit. In order to make a larger profit, coffee barons cultivated more coffee, only to face the issue of labor shortages (Lombardi). In addition, the law in Venezuela had been changed so there was no limit on interest rates on loans. “The prior law had limited the interest rate to a maximum of 6% per year, and required that” debtors’ goods be sold for no less than two-thirds of their value when repossessed to be sold at auction as repayment for the money they owed (Berglund 374).
On April 10, 1834, La Lye De Liberate De Contracts, or the Freedom of Contract law, was passed with the aim of stimulating the economy. This new law allowed creditors to lend money at interest rates they “deemed appropriate, and with the Judicial support of Sources of Post-Independence Economic Instability in Venezuela, 1830-1890 By rightward Under the 1834 law, interest rates soared, “ranging from a rare 9% to a customary 12%, and emergency rates of 18 to 24%” (Berglund 375-376).
The law also placed no limit on the amount of property that could be seized in order to pay for outstanding debts, and there was no regulation of acceptable pricing for auctioned goods (Ditz). This system eventually became an extreme hardship on the landowners, who had no means of paying back their debt with the excessive interest they owed. Another related issue was that of infrastructure. There were virtually no usable roads, which hindered the transportation of coffee and other goods for trade.
There was no effort to correct this issue until the presidencies of Antonio Gunman Blanch (from 1870-1877, from 1879-1884, and from 1886-1887). Gunman implemented the first national project of modernization, including building infrastructure such as roads, ports and railways (De Pulled and Ramirez). C. Evaluation of Sources “An Analysis of Values throughout the History of Venezuela” was an article written by Roseland Greaves De Pulled and Holyoke Ramirez, and appeared as a part of the compilation Cross-cultural Analysis of Values and Political Economy Issues, edited by Dan Voice, Jar. ND Lee P. Stepping. This secondary source was originally published in 1994 by Peerage Publishers in Westport, Connecticut. The purpose of the compilation was to analyze the effects of culture and values on business management (Voice and Stepping x’). De Pulled, a sociologist from the Universal Catholic Andrea Belle, in Caracas, Venezuela, and Ramirez, also a professor at the same university, wrote their Analysis” from a historical perspective for the purpose of understanding the Venezuelan interpretation of events and mindset toward economic success.
The value lies in its understandable explanation of historically important events and people, on which De Pulled is able to authoritatively give a native opinion. The focus on physical events, conditions, and effects rather than minutiae of economic growth and decay contributes to the comprehensibility. This is also a limitation, however, because there are no charts, tables, graphs, or corresponding numerical or mathematical evidence in support of the claims being made. The book The Decline and Abolition of Negro Slavery in Venezuela, 1820-1854 by John V.
Lombardi, a Ph. D. And specialist in Latin American history, fills in some of these evidential gaps. It was originally published in 1971 by Greenwood Press in Westport, Connecticut. The purpose of this secondary source is to “provide a case study of the operation and demise of slavery in a country not dominated by the institution” (Lombardi ‘x). The value of the work is that in explaining the decline and abolition of slavery, the effect of slavery on the economy and the economic conditions f the time are also explained.
There are export tables in the appendix to supplement the economic information discussed, which includes the Venezuelan coffee boom, the subsequent crisis, and the main reasons for the crisis. Lombardi was very careful to explain certain limitations of his data tables, including inaccessibility of certain data due to revolutionary activity (Banger 274). The limitations of the book are that it considers the economy in the context of slavery, and considers slavery in Venezuela in the context of nations that were dependent on slavery, which Venezuela was not.
D. Analysis The economic instability in Venezuela from the asses onward mainly stemmed during the initial coffee boom, and a huge fallout when the price of coffee fell from an average of about 0. 1 pesos per pound to about 0. 075 pesos per pound, eventually causing the credit crisis in conjunction with other factors. One problem with Venezuelan economic system was that it was still based on colonial ideas. Venezuelan landowners traditionally “relied on three major sources of investment capital: the Church, Spanish capitalists, and the Venezuelan rich.
But the wars for independence ended these relationships” (Lombardi 98). As such, the farmers had to obtain funding elsewhere. They began to borrow money at the newly high interest rates of at least 12% to buy enough capital to plant coffee, which was relatively profitable. However, there were crippling problems on every level of the coffee industry. Landowners didn’t implement innovations in fertilizers, planting, and harvesting, which contributed to inefficient processes. Venezuelan coffee was not very competitive due to its high prices (Diploid and Ramirez 207).
The prices were comparatively higher for a number of reasons. In addition to the inefficient farming ethos, once the coffee crop was ready to be sold, there was the problem of transportation. Venezuela had few usable roads and ports, and no feasible plan was ever put in place to overcome these issues. The cost of transporting the coffee crop absorbed much of the small profit the farmers made (Lombardi 103). After exporting the coffee, planters still didn’t fare very well in the international market because raw material exports were not very profitable (Diploid and Ramirez 208).
They made a very small profit margin, and the only way to make back the money they owed to creditors was to grow more and more coffee, which only contributed to he gradually declining prices throughout the initial boom (Lombardi 102). However, it was not practicable to expand their plantations because they couldn’t find willing laborers. Slavery was abolished in 1854 by President Jose Gregory Manages, eliminating one source of labor, although historians debate whether the impact of abolition was significant (Diploid and Ramirez 208).
The main problem lay with the peons normally hired to work the plantations. The peons would work on the coffee plantations during harvest season because it paid more than could be earned subsistence farming. In the growing season, planters only needed a small crew, but during the harvest season never had trouble hiring because they could always offer relatively high pay. However, as coffee prices fell, laborers could no longer be paid more than what could be made subsistence farming so laborers became harder to find (Lombardi 103).
As the creditors demanded repayment, landowning debtors became unable to pay back their loans. The planters could not escape their dilemma. They took out huge loans at high interest rates to start plantations, which didn’t turn a high profit, so they expanded their plantations, trying to repay the loans. In doing so, they only contributed to the falling price of coffee, which lowered their ability to attract workers. The amount of coffee being produced nearly quadrupled, but its value per pound was cut by one quarter. When the system collapsed the government did not have the wherewithal to deal with it.
In fact, the Congress had added to the issue by lifting restrictions on interest rates with the 1834 freedom of contract law. Normal interest restrictions would have slightly alleviated the debt crisis by regulating the repayment of loans, stimulate the economy by allowing liberty in deciding interest rates in loan contracts Ditz). E. Conclusion During the early national period of Venezuela from 1830 to the asses, the sources of economic instability were the fluctuating coffee prices, the subsequent credit crisis, and the ineffectual government.
The agrarian export economy still bore the mark of the colonial period, and the traditionally agricultural economy did not adapt to the times. Problems with farming techniques, lack of infrastructure, and declining available labor all contributed to the eventual failure of coffee exports. The fledgling government was not qualified to handle economic crises, and the situation was not addressed in time to prevent economic and political unrest. Venezuela had no experience with self-governance during the colonial period, and this affected the structure and actions of the government post-independence.
