From 1910 to 1946 Mexico experienced a series of conflicts that would have varied repercussions on the political, social, and economic status quo. The armed stage of the Revolution ( 1910-20) provoked total disorganization and a considerable decline in economic activity, with disastrous effects for trade, particularly within the country. This, combined with the outbreak of World War I, had adverse consequences for both production and the provision of services. These problems had not been overcome sufficiently when government and society at the national level were met with fresh problems in the form of the exploitation of petroleum held by foreign interests, the Great Depression of 1929, the Cristero Rebellion, and various pressures by foreign powers as a result of the oil expropriation of 1938.

The 10 years of the Revolution marked a period of violence and public insecurity, accompanied by the closing of roads, the disruption of rail transport and the drop in supply of raw materials and fuels. All this resulted in the virtual paralysis of production that, with the restriction on imports because of the events in Mexico and World War I as well as the general financial instability of the period, encouraged a black market, despite efforts by the state and the business sector to maintain a minimum circulation of basic consumer goods for the population.

The scarcity and untrustworthiness of statistical information from 1910 to 1920 prevents an exact knowledge of the annual behavior of the productive and service areas, making it only possible to compare extreme years. The limited data available nevertheless indicates a strong fall in economic activity between 1910 and 1915 that coincides with the period of the most intense Revolutionary conflict. Mining activity was the most affected; its production in 1921 represented only 60 percent of production in 1910. Manufacturing production was reduced by 9 percent and agricultural production by 3 percent. In contrast there was a marked expansion in other activities; boot making expanded to serve the needs of the Revolutionary armies, and the textile industry profited from restrictions on imports, as did above all the petroleum industry, whose production was oriented toward foreign markets.

The Constitution of 1917 laid the basis for a new political, social, and economic structure in the country, permitting the creation of new conditions to stimulate the growth of the national economy. In this sense agrarian reform, since it made the peon and agricultural laborer landowners, gave powerful impetus to the expansion of internal markets. Major business interests took advantage of the situation in 1917 to create the Confederación de Cámaras Nacionales de Comercio ( CONCANACO, or Confederation of National Chambers of Commerce) as a form of defense and stimulus for mutual interest as well as a means of participating in the new national structure.

With the caveat that the data are incomplete, two opposing interpretations of the Díaz regime’s economic performance are possible. The first is that Mexico’s gross national product (GNP) grew at well under 3 percent per year and that Mexico suffered a chronic balance of payments deficit masked only by foreign investment and by counting peso transfers as exports. This interpretation proceeds form the assumption that all specie movement represented payment for imports, capital flight, foreign debt service, profit remittances by foreign-owned companies, freight costs, and other fees. But funds transferred as payments abroad did not pass as exports through custornhouses. The other interpretation of the data is that, from 1888, Mexico’s GNP grew between 3 to 5 percent per year and that Mexico posted positive trade balances (including the commodity export of pesos) every year after 1890. In 1895, total exports exceeded 100 million pesos, with imports of about 70 million pesos; in 1900 exports reached 150 million pesos, with imports of 120 million pesos. The positive impact of peso exports is seen clearly by the events of 1905, when conversion to the gold standard, coupled with a rise in silver prices, flushed hundreds of thousands of pesos from Mexico in a few months, producing the largest surplus of exports over imports for the period—about 265 million pesos of exports versus 175 million pesos of imports. From 1905 to 1910, with the peso trade effectively shut down by the 1905 monetary laws, exports barely moved while imports passed 200 million pesos. The latter optimistic interpretation is almost certainly correct, but ultimately, the evolution of markets and trade must be evaluated not only in terms of GNP and balance of payments, but in terms of social and human costs as well.

Conventional wisdom holds that railroads linked Mexico’s countryside and city to create a national market. A more cautious evaluation is that railroads provided the potential for a national market. Railroads drastically reduced transportation costs compared to mule trains and carting, but domestic freight rates remained high compared to the cost of international shipping by water and rail. The scholar John Coatsworth has observed that most Porfirian peasant rebellions took place within a 25-mile (40 kilometer) range of railways. This, along with contemporary reports of significant variations in labor, food, and commodity prices over short distances, suggests the practical limits of rail-net integration. Thus, while Irupuato lacked a national market for its abundant but perishable strawberry crop, railroad companies offered low package rates bringing thousands of U.S. touristinvestors to the “Land of Montezuma” to encourage the development of tropical plantations along their right-of-ways. International cargoes cheaply crossed the isthmus between the ports of Salina Cruz and Puerto México on the British-built Tehuantepec Railway, but its domestic rates were so high that coffee planters along its right-of-way packed their product by mule to U.S. railheads for shipment. Even in Mexico City, the hub of the national rail net, most of the city’s production was consumed locally, despite the pleas of businessmen for freight rate and tax reductions in order to expand their markets.

In short, relatively low international freight rates linked Mexico’s patrias chicas more efficiently to the global economy than to each other. Nowhere was the sensitivity of Mexican markets to foreign technology and demand more apparent than in the extractive industries. The U.S. protective tariff on exported Mexican ores was a catalyst for the construction of refining and smelting plants in Mexico such as those constructed by the Guggenheims. Electrification created a demand for copper, which led Colonel William Greene to develop the Cananea mines. Because cables had to be insulated, rubber prices skyrocketed, producing a flood of British and U.S. investment to establish Hule rubber plantations in tropical Mexico. The henequen plantations of the Yucatán perhaps best illustrate transformative effects of foreign markets. The introduction of mechanical reapers in the United States required vast amounts of tough sisal binding twine. As sisal’s price rose from less than three cents a pound in 1894 to almost ten cents a pound in 1902, Yucatán became a vast henequen plantation dominated by a 30-family oligarchic merchant-planter camarilla headed by the Molina-Montes clan, which enjoyed political hegemony through its collaboration with International Harvester, which effectively controlled the sisal market.

Porfirian replacement of imported intermediate goods with domestic products was reasonably successful. By 1903 60 percent of all dry goods sold in the country were of domestic origin, with U.S.-owned manufacturers contributing significantly to that replacement. U.S.-built railroads generated an estimated 35 percent of Mexico’s economic growth during the Porfiriato. For example, within four years after the completion of the Monterrey and Mexican Gulf Railroad in 1891, industries valued at over US$8.5 million were established, including smelters, a foundry and machine shop, a nail factory, a brewery, a furniture factory, soap factories, bottling works, flour mills, three electrical plants, a cartridge factory, several hotels, a brickyard, two ice plants, a spur railway, hundreds of stores and shops, and two regional banks with capital totaling US$2 million. Additional millions were invested in mines along the railroad’s route. In 1900 alone, 48 new businesses opened along the Mexican Central’s right-of-way. By 1901, the capital boasted over 250 industrial plants. Virtually all were foreign owned, organized as joint stock companies whose shares traded on an informal curb market based on prices quoted in the local press. Eventually, a formal securities market was organized to trade not only Mexico stocks but international securities as well.

By 1900 Mexico was replacing imports of capital goods. The Mexican Car and Foundry Company, whose board included Pablo Martínez de Río (Mexican millionaire entrepreneur) and Colonel J. H. Hampson (president of Mexico City-Cuernavaca Railroad), manufactured rolling stock and locomotives. Heavy industry grew up in Monterrey, Chihuahua, Torreén, and Mexico City, where it benefited from rapid urban development and the expansion of municipal utilities. But Mexican heavy industry was burdened by high fuel costs and low profit-to-bulk ratio. It was cheaper to ship steel to Tampico from English mills and Belgian cement from Antwerp than to transport either from Monterrey. The Fundidora Monterrey, which produced 95 percent of domestic steel operated at well under 50 percent capacity throughout the period because rail rates made it unprofitable to ship beyond a 150-mile (250 kilometer) radius. The same was true of cement factories. At its peak, Mexico’s cement industry controlled just 47 percent of the national market. Fundidora Monterrey eventually secured the market for steel rail and structure shapes, but it faced stiff foreign competition in all other product lines. Moreover, Mexico’s inability to absorb its own production prevented economies of scale except in those industries favored by state-granted monopolies and protective tariffs (e.g., paper making) or producers of low-bulk, highprofit consumer goods (e.g., beer and cigarettes).

Mexico replaced its earlier puro Liberal commitment to free trade with a strategic and flexible Porfirian protectionism that protected established industry and promoted the new. Duties of up to 200 percent were placed on imports that competed with local manufacture (particularly cotton textiles), while equipment intended for railway construction and industrialization (including essential raw materials such as cotton) were lightly taxed. As world cotton prices rose in the 1880s, Díaz imposed a tariff on raw cotton imports to stimulate national production as a cheaper staple for Mexican mills. To this end, he granted a concession to a corporation formed by Mexican planters and financed by Spanish capitalists in Mexico City to build a canal from the Rio Nazas to irrigate and expand the fertile Lagunera cotton region bordering Coahuila and Durango. Ultimately, embezzlement by the board of directors led to the transfer of ownership to U.S. and British investors, and subsequent litigation with other users of the Nazas contributed to the destabilization of the Díaz regime in the years before the Revolution. The expansion of cotton production at the expense of basic food production illustrates an important market shift during the Porfiriato that led, for the first time, to a reliance upon imported corn and grain.

The petroleum industry presents another example of the Porfirian retreat from economic liberalism and embrace of neo-Bourbon economics to promote new industry. In the late 1870s, rather than pay the tariff on the importation of finished products, the Waters-Pierce Oil Company built two plants to process semi-refined surplus petroleum from its parent, Standard Oil Company. Waters-Pierce pioneered the Mexican market for illuminating oil by selling inexpensive lamps and kerosene heaters at cost to create a customer base. When Edward Doheny’s explorations at Ebano proved the viability of Mexican petroleum reserves, it opened the door to Sir Weetman Pearson. The British industrialist was given a concession to build refineries, ending the monopolistic Waters-Pierce concession. The regime’s goal was twofold: to restore the balance in Mexico’s mix of foreign investors and to enable Mexico to export petroleum products refined from its own crude. Thus, in 1908 began the great oil war for the Mexican market, which, although it resulted in substantial consumer savings, greatly increased tensions among Mexico’s international partners prior to the Revolution.