CHAPTER IV
BANKS, THE BOURSE OR STOCK EXCHANGE, AND LIMITED COMPANIES
Banks—International character of Argentine banking—Evolution of banking machinery—List of the principal banks, with amount of capital and business done—Conditions peculiar to Argentine banking; the lack of moveable reserves—Rates of interest on account, on deposit, and on advances—Statistics of the deposit accounts of the principal banks—Exchange operations: their decrease since the determination of a fixed monetary ratio—The Clearing House; the importance of its operations.
The Bank of the Nation—Its history—The formation of its capital—Political interference in the nomination of its Directors—Statistics of its accounts—Rapid increase of deposits—Difficulty of realising capital—The resumption of payments.
The Bank of the Province of Buenos Ayres—Its reorganisation—Its present prosperity.
Mortgage and Loan Banks—History of the Banque Hypothécaire of the Province of Buenos Ayres—Bankruptcy—Arrangement between the bank and its creditors—Proposal of reorganisation—Laws relating to mortgage in the Argentine—The National Mortgage Bank; statistics of business done—Joint-stock loan companies; their capital and amount of business done.
The Stock Exchange (Bourse)—History of this institution—Its importance; its functions; amount of business done—The decrease in its transactions since the cessation of speculation in currency or the monetary ratio.
The Bourse is a private establishment—Its membership and its regulations—Statistics of business done during the last ten years—Securities quoted on the Buenos Ayres Bourse—Decrease in the total amount of business done during the last five years—The monetary reform of 1901 as a factor of this decrease—The place occupied by the Stock Exchange in the life of the nation.
Joint-stock Companies—The development of joint-stock companies—Legislation affecting such companies—Abuses committed in the formation of such companies, due to speculation—Statistics of capital invested in joint-stock companies before and after the speculative crises of 1890—Revival of such companies, in a sense more consistent with the development of the country.
In any sketch of the commercial life of the Argentine, we must include the Bourse and the banks, which play an important part in the business life of the community, owing to the facilities which they afford to all kinds of commercial transactions.
To-day such transactions represent a considerable figure, and involve a movement of capital amounting to scores of millions. There is obviously need of an organised body designed to simplify this movement, and to place at the disposal of trade the means of effecting its exchanges with the least possible displacement of capital.
Banks.—It was inevitable that in the Argentine the evolution of banking should be towards an international character, since the trade of the Republic is almost entirely with foreign countries. Moreover, this trade is very largely in the hands of foreigners: French, English, Germans, Italians, Spaniards, Belgians, or Americans from the States; which fact has resulted in the formation, in the city of Buenos Ayres, of various groups of banks, corresponding, in respect of their founders or their capital, to these various nationalities. Each of these establishments is in constant communication with the country of its origin, and seeks to gather round it clients of its own nationality.
Both in the matter of importance and that of organisation the banks doing business in the Argentine leave nothing to be desired. As we shall presently see, the sum of the capitals of all these banks amounts to a total of nearly £26,000,000; a sum which appears to be amply sufficient for all the present requirements of trade.
Working under a system of free competition, and handling a considerable capital, they have been induced to offer greater and greater facilities to trade, in order to increase the number of their clients and the volume of their operations. Moreover, the suppression of the gold premium has removed one of their chief sources of profit; so that they have been forced to obtain, through the extension and perfection of their ordinary banking operations, the compensatory increase of business which allows them to maintain the volume of their profits and their dividends.
One cannot subject these banks to a rigid comparison; each of them conducts its business for the benefit of clients of its own nationality, and in consequence must accede to
their usages. The English banks, for example, have as their clients railway companies, a large number of export houses, and steamship lines, on account of the ties which connect them with the London market and its principal financial groups. The German Bank principally serves German industrial houses, and also German exporters. The French Bank of the Rio de la Plata, owing to its relations with the Paris market, and its strong position in Buenos Ayres, is of inestimable service to French commerce in the Argentine. The Italian banks share the custom of the Italian colony, which, on account of its numerical importance, gives rise to a great deal of small business.
The Banco Español del Rio de la Plata, which has branch establishments in Paris, London, Genoa, and Madrid, is in direct relation with the financial circles of those cities, and facilitates all banking operations between the various Spanish-speaking countries. Founded by the financiers of Buenos Ayres, and afterwards enlarged by French capital, the Spanish bank, which has admirable premises, has succeeded in surrounding itself with a clientèle of great landed proprietors, by offering them all kinds of facilities for the conduct of business operations connected with the sale of national produce. Their branch establishment in Paris is the favourite bank of the numerous Argentines who go yearly to Europe on business or for pleasure.
In this congeries of banks the Argentine is represented by two great establishments: one of these, the Banco de la Nacion Argentina, is a State institution which, in addition to the business transacted with the Government, runs cash and deposit departments like other banks; the other is the Banco de la Provincia de Buenos Ayres, whose origin was in the reconstruction of the historic bank of the same name, the collapse of which was provoked by the terrible financial crisis of 1890. The excellent results of the last three years which we shall presently consider in detail, allow us to predict a brilliant future for this institution.
We shall give, in the following table, a list of these banks, in the order of their establishment, with details as to their capital, reserves, transactions, and dividends.
As lately as the year 1907, it was extremely difficult to
obtain exact information as to the operations of financial establishments, as there was no law obliging them to publish periodical statements of their position. From this state of affairs resulted this curious fact: that if one wished to ascertain the situation or study the operations of the English banks, for example—establishments which effected their business transactions by the aid of funds deposited by inhabitants of the Argentine—one was forced to resort to the records of the London Stock Exchange, in order to examine the reports and balance-sheets presented each year by the administrative Boards to the shareholders residing in England. But, very fortunately, thanks to a decision of the ex-Minister of Finance, Dr Eleodoro Lobos, this omission has been remedied, and it has been decreed that all financial establishments must in future supply the Ministry of Finance, during the first days of each month, with an explanatory balance-sheet giving details of their transactions. This information is made public, so that not only the Government, but anyone devoting himself to the study of commercial or financial affairs, may obtain an exact knowledge of the situation of the leading banks, and thence of the market, or indeed of the country in general.
All these banks work with a relatively large capital, which is mostly deposited. To understand the situation we must remember that banks are obliged, in the Argentine, to keep going by their own means, and are not allowed the resource of mobilising their turnover by rediscounting at the Bank of the Nation. The latter, indeed, is rather a competitor than a prop; since it also seeks the custom of private clients. Thus the funds at the disposal of the banks consists of their own capital and their deposit accounts—these latter varying greatly from one period to another—and they cannot benefit by the supplementary force arising from a credit at the National Bank.
| BANK | Founded | Capital | Reserve | Last | |
| in | Subscribed | Deposited | Funds | Dividend | |
| London and River Plate Bank | 1862 | £2,000,000 | £1,200,000 | £1,200,000 | 20% |
| London and Brazilian Bank | 1862 | 2,000,000 | 1,000,000 | 1,000,000 | 15% |
| British Bank of South America | 1863 | 1,300,000 | 650,000 | 600,000 | 13% |
| Italia y Rio de la Plata | 1872 | 1,200,000 | 1,200,000 | 242,600 | 10% |
| Español del Rio de la Plata | 1886 | 4,400,000 | 3,346,671 | 738,848 | 12% |
| Francès del Rio de la Plata | 1886 | 2,400,000 | 2,350,340 | 140,562 | 9% |
| Nuevo Banco Italiano | 1887 | 264,000 | 264,000 | 103,400 | 15% |
| Popular Argentino | 1887 | 429,836 | 427,251 | 197,296 | 11% |
| Anglo-South-American Bank | 1888 | 2,500,000 | 1,250,000 | 750,000 | 9% |
| Banco de la Nacion Argentina | 1891 | 9,697,600 | 9,697,600 | 5,332,319 | — |
| Banco Aleman Transatlantico | 1893 | 1,000,000 | 880,000 | 159,232 | 9% |
| Banco Popular Italiano | 1899 | 110,170 | 79,752 | 3,696 | — |
| Banco del Rio de la Plata | 1902 | 88,000 | 87,340 | 6,864 | 10% |
| Banco de Credito Argentino | 1904 | 247,280 | 148,783 | — | — |
| Banco de la Provincia de Buenos-Ayres | 1906 | 1,760,000 | 1,760,000 | 89,320 | 10% |
| Banco de Galicia Buenos-Ayres | 1905 | 264,000 | 264,000 | 2,438 | 4% |
| Ernesto Tornquist & Co. Ltd. | 1874 | 1,500,000 | 1,500,000 | 230,263 | 10% |
This lack of fluidity as affecting their capital is doubly inconvenient; it forces the banks always to keep their cash reserves at a high level, and also prevents their finding employment for their deposited funds—at any rate in the case of accounts at sight. Without this faculty of rapid mobilisation they cannot enlarge, by operations of short
duration, the sums which they receive in deposit, and consequently cannot allow any appreciable interest on that portion of their capital. Some banks are at present paying 1 per cent. on current accounts; others, and notably the National Bank, allow their depositors no interest. For deposit accounts at three months the interest is usually 31⁄2 per cent.
As for the rates of discount, these have fallen considerably in the last few years; partly on account of the increasing competition between the various financial groups, and partly on account of the abundance of capital after several years of good harvests. After standing for a long time at 7 and 8 per cent., the average rate for first signatures tends nowadays to settle at 6 per cent.
This is a fact which may surprise those who believe that the monetary situation of a country is always affected by the premium on gold, but we shall see, in the chapter on finance, that there is, as a matter of fact, an influx of gold into the country, and that its movable resources have never been more abundant. The circulation of notes is now guaranteed by a cash reserve of more than 65 per cent.
The banks receive deposits at sight, at thirty, sixty, ninety, and one hundred and eighty days. They also receive deposits on the “savings-bank” system: that is they pay 31⁄2 or 4 per cent. upon deposits not exceeding 5000 to 10,000 piastres in paper money, or 3000 to 5000 in gold (according to the particular bank)—that is, £440 to £880 in notes, £600 to £1000 in gold—on condition that if the money is withdrawn under sixty days no interest will be allowed. After the lapse of sixty days the money may be withdrawn at the will of the depositor, and the interest is added since the day of deposit. Small savings deposited on this system attain to considerable proportions, and the public is becoming more and more familiarised with business of this kind.
One item that differs very sensibly from European usage is the rate of interest charged on current debit accounts. As the Argentine has no law regulating this rate, there have been times, happily now past by, when this rate has been as
high as 10 and 12 per cent. Of late years the Government has paid, as a maximum, 6 to 7 per cent. and that in moments of disequilibrium, when international complications were feared, and the bank rates had risen in England and elsewhere.
For private individuals conditions are also easier, on account of competition, and 7 per cent. has become practically the average rate. In certain banks the rate on debit accounts has even fallen as low as 6 per cent.
The following table indicates the movements of the principal accounts, during the years 1906-1908, in the case of the various banks which publish their balance-sheets, in the Argentine.
On an international market like that of Buenos Ayres exchange operations are naturally most attractive. Since the suppression of the gold premium, which has reduced the risks to a barely sensible amount, these operations no longer retain their old speculative character; but, on the other hand, the profits to be drawn from operations of this kind have greatly diminished, so that business has gained only in safety and extent. We may here recall the fact that speculations in gold, which amounted to 1,234,000,000 piastres paper (£108,592,000) in the year 1899, had fallen to 211,000 piastres in 1904, and have now entirely ceased.
Moreover, in order still further to avoid all risks, such business is now done by means of cable transfers, instead of by cheques at one month from date as formerly; thus avoiding as far as possible any variation in the rate of exchange. It is chiefly during the period of exportation that these drawing transactions become of great importance.
Exchange business is transacted on a gold basis; that is, on the basis of the gold piastre, which is equivalent to a dollar, or to 5 francs of French money, or 4s. of English; as for settlements, they are made indifferently in gold or paper, on the basis of 44 centavos, or ·44 of a piastre in gold, for one piastre in paper.
Formerly the rate of exchange used to vary very perceptibly with the seasons. The banks used to buy during the export season, which for grain and wool lasts from December to March, and consequently profited by the abundance of the market to discuss the price. They then sold to import houses during the slack season, sometimes making a profit of 6 to 10 centimes. Now competition has greatly reduced these margins, which scarcely vary at all, in a normal season, except to the extent of an insignificant fraction.
| MILLIONS STERLING | ||||||
| BANKS | Deposited | Discounted | Cash Reserves | |||
| Gold | Paper[89] | Gold | Paper[89] | Gold | Paper[89] | |
| National Argentine | ·54 | 14·773 | ·26 | 15·004 | 1·86 | 4·611 |
| Spanish of the Rio de la Plata | ·52 | 10·076 | ·58 | 8·289 | ·26 | 2·84 |
| French of the Rio de la Plata | ·88 | 4·206 | 1·16 | 4·160 | ·62 | 1·117 |
| Italian of the Rio de la Plata | ·38 | 6·204 | ·8 | 4·259 | ·42 | 1·645 |
| New Italian | ·08 | 1·804 | ·16 | ·950 | ·02 | ·361 |
| Popular Argentine | ·004 | ·801 | ·01 | ·809 | ·02 | ·255 |
| Province of Buenos Ayres | ·18 | 4·593 | ·042 | 3·991 | ·04 | 1·188 |
| German Transatlantic | ·26 | 2·367 | ·94 | 2·552 | ·34 | ·533 |
| Anglo-South-American | .. | .. | .. | .. | .. | .. |
| British | ·28 | 2·886 | ·76 | 2·561 | ·30 | ·774 |
| German | ·02 | ·109 | ·06 | ·325 | ·06 | ·299 |
| London and Brazilian | ·16 | 6·688 | ·58 | ·545 | ·12 | ·185 |
| London and the Rio de la Plata | 1·46 | 11·906 | 1·64 | 7·629 | ·96 | 3·602 |
| National Argentine | ·98 | 16·940 | ·4 | 18·832 | 3·612 | 4·840 |
| Spanish of the Rio de la Plata | ·32 | 9·880 | ·38 | 8·553 | ·32 | 3·476 |
| French | 1·04 | 3·819 | 1·28 | 3·845 | ·78 | 1·179 |
| Italian | ·36 | 6·186 | ·74 | 4·681 | ·52 | 1·320 |
| New Italian | ·1 | 1·988 | 2·4 | 1·601 | ·036 | ·493 |
| Popular Argentine | ·04 | ·695 | ·0004 | 1·188 | ·03 | ·325 |
| Province of Buenos Ayres | ·38 | 4·919 | ·18 | 4·514 | ·22 | 1·232 |
| German Transatlantic | ·28 | 2·464 | ·96 | 2·424 | ·32 | ·693 |
| Anglo-South-American | ·16 | ·730 | ·42 | 2·173 | ·04 | ·308 |
| British-South-American | ·3 | 2·939 | ·76 | 2·508 | ·6 | ·748 |
| German-South-American | ·22 | ·264 | ·24 | ·563 | ·24 | ·660 |
| London and Brazilian | ·12 | ·739 | ·54 | ·651 | ·08 | ·211 |
| London and Rio de la Plata | 1·4 | 10·665 | 1·2 | 6·713 | 1·00 | 3·634 |
| National Argentine | 1·06 | 20·601 | ·4 | 21·483 | 4·54 | 5·944 |
| Spanish of the Rio de la Plata | ·44 | 11·077 | ·38 | 11·044 | ·38 | 3·687 |
| French of the Rio de la Plata | 1·18 | 4·013 | 1·02 | 4·919 | ·68 | ·880 |
| Italian of the Rio de la Plata | ·36 | 6·6 | ·8 | 4·699 | ·58 | 1·302 |
| New Italian | ·08 | 2·094 | ·16 | 1·874 | ·01 | ·413 |
| Popular Argentine | ·016 | ·809 | ·0002 | 1·443 | ·02 | ·273 |
| Province of Buenos Ayres | ·4 | 57·112 | ·12 | 5·788 | ·014 | 1·381 |
| German Transatlantic | ·236 | 3·053 | ·88 | ·234 | ·366 | ·906 |
| Anglo-South-American | ·14 | ·607 | ·16 | 1·461 | ·08 | ·255 |
| British-South-American | ·18 | 3·247 | ·46 | 2·606 | ·52 | ·739 |
| German-South-American | ·16 | ·264 | ·28 | ·756 | ·06 | ·141 |
| London and Brazilian | ·12 | ·713 | ·44 | ·774 | ·14 | ·255 |
| London and Rio de la Plata | 1·22 | 10·877 | ·98 | 7·119 | 1·9 | 3·669 |
[89] The amounts here given are, of course, the actual, not the face values, of the notes.
Again, the sales of money are now extended over a far longer period than before, as the export season itself has been extended by new products, such as maize, chilled and frozen meats, etc., which do not necessarily find their outlet at the same time as the rest of the harvest. Thus the banks have no longer any incentive to hoard reserves of money, as they are no longer certain of selling them a few months later.
All these conditions here enumerated are of course subject to certain small variations, according to the kind of trade or industry. The large landowner, the grazier, the farmer, the cattle-breeder, who has no money at his disposal but that coming from the sale of his products, can only procure credit, no matter what his wealth may be in land, at a rate far higher than that which is demanded of the large commercial houses of Buenos Ayres. But as we have especially attempted to demonstrate, the Argentine banks are to-day splendidly equipped with capital, so organised as to assist commerce by services of many kinds, and, finally, their charges have been abated, by the action of competition, to rates which one would hardly expect to find in practice in a new country.[90]
[90] The deposits in the Argentine banks at present amount to nearly £80,000,000.
As the latest sign of progress we may mention the establishment of the Clearing-House, which commenced operations in 1893, upon the model of the London Clearing-House, under the able management of the under-manager of the Bank of London and the Rio de la Plata, Mr Hogg. This institution, as its name indicates, serves to strike the balances of the sums which the various banks may owe one another, the balances only being actually paid over. The total sum represented by the operations of the Clearing-House in 1908 was over £352,000,000. This figure includes
the transactions of the principal banks of Buenos Ayres, with the exception of the National Bank, which does not make use of the Clearing-House.
Between 1893 and 1899 the business done at the Clearing-House underwent a notable and continual increase, and in 1899 amounted to more than £350,000,000. Since that time its operations temporarily decreased in value, owing to the suppression of the gold premium, which put an end to exchange speculations, which formerly kept the Clearing-House busy; so that in 1903 and 1904 the total amount of the operations was barely £264,000. Since 1904, however, these figures have gradually increased, and in 1907 and 1908 they once more exceeded £350,000,000. To-day the business is purely commercial, rendering any exact comparison with the times when speculation played the principal part extremely difficult. But if we could subtract this latter element we should certainly find that the compensations based on commercial operations have greatly increased, since the figures of 1899, although less by those representing speculative transactions, have not appreciably diminished.
The Bank of the Nation.—To complete this account of the banks of Buenos Ayres and their operations, we must give an account of the working of the most important of them all: the Banco del Nacion. This bank is of especial interest, on account of its relations with the Argentine Government, which guarantees all its liabilities.
The Bank of the Nation came to birth at an extremely critical moment in the history of Argentine credit and finance. In 1890, after the double political and financial crisis which was then affecting the country, as a consequence of the errors and abuses committed by the Governments, at a time when all the official credit establishments in the country lay moribund, disorganised, and discredited, the Government of Signor Pellegrini, called in to inherit the confusion of that which had just fallen, found itself faced with terrific problems. It attempted to solve the banking problem by founding a new institution, to which it assigned a capital of 50,000,000 of piastres—£4,400,000—the shares to be offered for public subscription. To the subscribers it promised a certain intervention in the
administration of the bank, at the same time reserving to the State the right of appointing the president, just as the French Government appoints the president of the Bank of France. In order as far as possible to guarantee the shareholders and the public against the errors and abuses which had formerly been so disastrous, it established certain restrictive rules in the charter of the new establishment.
At another time there was much discussion as to whether the Government of Signor Pellegrini, whose patriotic intentions no one doubted, would not have done better to rescue the old National Bank, which was tottering amid the ruins of the crisis, and whose assets, administered by the new institution, might have given better results than did liquidation, thus saving the State much expense; but this question is no longer of immediate interest.
As was only to be feared, the public, after the spectacle of such striking examples of the lamentable end to which official banks are liable in countries formed by the chances of immigration, and devoid of established traditions: wherein there exists no sanction for the suppression of undoubted abuses: the public, we shall see, regarded the new institution with mistrust, and abstained from buying shares. The Government, disappointed in its attempt, was compelled to replace the system of public subscription by an issue of notes, which explains why a purely official bank was created, instead of the mixed bank which had been proposed.
Realising that the success of a bank depends far more upon the confidence with which it inspires the public than upon its organic charter, Signor Pellegrini’s Government, together with those that followed it, took care to place at the head of the Banco del Nacion only men who were capable, by their good judgment, their technical competence in banking business, their social position, and their knowledge of the business world, of giving prestige to the establishment, and surrounding it with the atmosphere of respect and confidence which was necessary to its success. Thus in spite of its official origin the bank was able to find support in public opinion, and to render important services to industry and commerce.
A study of the accounts of this establishment, during the
years 1904-1908, reveals a steady and prosperous progress, which has incontestably placed the Bank of the Nation at the head of all similar institutions.
A glance at the following table will prove this. It contains the balances of the three principal accounts, upon the 31st of December of the five years from 1904 to 1908 inclusive.
| Year. | Bills in Hand. | Overdrafts in Current Accounts. | Deposits. |
| 1904 | £8,486,326 | £14,384 | £12,561,969 |
| 1905 | 11,842,611 | 2,589,167 | 15,501,340 |
| 1906 | 13,364,585 | 1,907,818 | 15,163,974 |
| 1907 | 16,502,621 | 2,731,314 | 18,008,501 |
| 1908 | 19,049,798 | 2,897,008 | 20,713,375 |
We see from these figures that in five years the business done has increased by more than 101⁄2 millions of pounds; the overdrafts in current accounts by nearly £300,000 (in four years, 1905-1908), and the deposits by more than £8,000,000.
The Bank of the Nation has one hundred and ten branch establishments scattered all over the Argentine, and their number is continually increasing. Here are the figures relating to the three principal accounts in these branch establishments during the same period:—
| Year. | Bills in Hand. | Overdrafts on Current Accounts. | Deposits. |
| 1904 | £5,111,481 | £3,744 | £5,187,982 |
| 1905 | 6,987,847 | 349,427 | 6,842,559 |
| 1906 | 8,557,900 | 570,350 | 7,707,001 |
| 1907 | 9,848,713 | 860,899 | 8,433,003 |
| 1908 | 11,196,690 | 744,119 | 10,210,650 |
We find here, among the branch establishments, an increase of over £6,000,000 in the bills in hand; nearly £740,000 in the overdrafts on current accounts; and over £5,000,000 on the deposits.
These exceedingly satisfactory results have been obtained by the National Bank by means of a nominal capital of £9,680,000. We use the phrase “nominal capital” with intention, for although this sum figures on the balance-sheets of the bank, we must remember that in this capital are included State bonds, which would have furnished, had they been negotiated, an available sum of £3,212,000 in paper-money, and that the net profits of the year 1908 are also
included, amounting to £644,036 in paper, which by law must go to increase the “Capital and Reserve Funds.” The two accounts, after the deduction of the sums accruing to them as profit, amount respectively to £9,697,946 in paper-money and £1,303,248 in gold. It follows from this that if the Banco del Nacion, instead of being an official institution, were an ordinary bank, it would have been able to pay its shareholders a dividend of 10 per cent. upon its paid-up shares.
The data we have just given prove abundantly that the Bank of the Nation has been directed by a hand as firm as it is prudent, and there is every reason to suppose that it will continue in the future to serve public and private interests as well as it does to-day. The forecast we predicted in the first edition of this book will have proved mistaken; a forecast based upon the authoritative opinion of an eminent Argentine statesman, who affirmed that the official banks “bore within them the germs of the moral and financial ruin of the country.” He even added that one should never “incorporate a bank with the political administration of a State, because sooner or later it will be used as a political weapon.”
We must here pay our respects to the memory of Dr Ramon Santamarina, a former president of the Administrative Council of this establishment, whose premature death was a great loss to the bank and to the country. It is, indeed, to his intelligent and circumspect management of affairs that we owe a great measure of the happy results obtained.
The Bank of the Province of Buenos Ayres.—There is in the Argentine another important financial house: the Banco de la Provincia de Buenos-Aires, which has lately re-arisen from its ashes, by the aid of the Banco del Comercio Hispano-Americano. This also was a victim of all kinds of abuses, committed to its detriment, by the administrations which successively directed it.
The bank was reorganised in June 1906, with a capital of £1,760,000, of which sum half was furnished by the Government of the Province and half by the shareholders, with the proviso that this capital might be increased to
£4,400,000, which was done at the end of 1908. According to the business done by this bank from 1906 up to the present time, we may predict for it a great future, provided that its presidents, learning from the past, guard it resolutely from the influence of political struggles and the demoralising factions from which it has suffered in the past. The new establishment enjoys all the prerogatives, exemptions and privileges which were accorded to the old bank; it is the obligatory receptacle in which are deposited, gratuitously, the funds of the provincial administrations and the courts.
The most delicate point in this conjunction, namely, the manner in which the administration of the bank should be conducted, has been so determined as to assure the preponderance of the private interests of the shareholders of the bank over the official interests of the Government. The administration of the bank is confided to a council, composed of a president appointed by the Government of the Province of Buenos Ayres, and twelve directors, four of whom are nominated by the Government and eight by the private shareholders; an arrangement which constitutes an excellent guarantee of proper management.
From the balance-sheets of the last three years, and the figures contained in the reports of the directing board, or Council of Administration, we may judge the activity displayed by this bank, and the progress realised since its re-establishment.
Here, for example, are the amounts of the deposit accounts as taken upon the 31st of December of each year, from 1906 to 1908 inclusive, as well as the bills in hand and the overdrafts on current accounts.
| Year. | Deposits. | Bills in Hand. | Overdrafts on Current Accounts. | |
| Paper.[91] | Gold. | |||
| 1906 | £4,610,309 | £179,431 | £3,419,809 | £467,342 |
| 1907 | 4,920,561 | 396,108 | 3,953,903 | 565,670 |
| 1908 | 5,716,441 | 409,690 | 4,785,044 | 477,310 |
[91] Actual value in gold.
The extensive business done by this bank, which is evident from the preceding figures, has produced considerable profits, which amounted to £109,298 in 1906; £220,551 in 1907; and £246,884 in 1908.
In the latter year the net profits reached an average of 14·02 per cent. of the total capital. This flourishing state of affairs allowed of the payment to the shareholders of a dividend of 9·5 per cent. in 1907 and 10 per cent. in 1908, without prejudice to the reserve funds, which amount to £73,920.
Money-lending or Mortgage Banks (Banques Hypothécaires). There are two great official institutions of this kind in the Argentine: the Mortgage Bank National is progressing in a normal manner; the other, the Mortgage Bank of the Province of Buenos Ayres, is painfully achieving the process of liquidation.
We must explain that this institution, which worked for a number of years with average regularity, collapsed violently in 1890, on account of the scandalous abuses committed by the management in the matter of loans, and the pernicious introduction of electoral politics into the conduct of business. This is one of the most lamentable pages of the administrative and financial history of the Argentine during the last few years.
After numerous efforts had been made at various times with a view to making an arrangement between the bank and its creditors by means of an exchange of its bonds of mortgage for new bonds of the Rente Provinciale, a satisfactory agreement was at length arranged, which put an end to the irregular situation of the bank, in a manner as advantageous for the creditors as for the Province.
According to the report drawn up by the representative of the Government, the liabilities of the bank amounted, on 30th June 1906, to £19,725,636; and to set against this colossal debt the bank possessed the assets, largely precarious, represented by 503 loans on mortgage, of which the principal amounted to £1,967,704, while unpaid or overdue interest accounted for £6,568,440; or a nominal total of £8,536,140.
The assets also comprised certain other items, amounting to a total of £2,186,184.
Some of these assets had a real value and could be considered as capable of realisation. Among these were: the money in the bank, the bank premises, the mortgages, and the special accounts with the Provincial Government; these items constituted the best class of assets. The remaining
assets were more precarious, and their investigation gave rise to serious criticisms.
Two classes of assets, for example, which were apparently of considerable importance—those relating to hypothecary credit and to personal shares—were far from representing the value which was shown on the balance-sheet.
Taking into account the probabilities of the realisation of certain classes of assets, in case of need, a liability of £19,725,636 was opposed by assets equivalent to £6,242,039, leaving a deficit of £13,583,595. In other words, the assets represented only 31 per cent. of the liabilities.
The Government’s representative, having analysed the effective revenue at the disposal of the Province, and allowing for the probable progress by which it might benefit in the immediate future, declared that the Public Treasury could not put aside more than £308,000 for the purpose of guaranteeing the dividends on the shares of the Bank; but that this sum would probably be increased by £44,000 during the next five years, and by £48,400 at the end of ten years; thus assuring the creditors of an interest of 31⁄2 per cent., and a proportional amortisation of 1⁄2 per cent. An arrangement on this basis was proposed to the creditors of the Bank at a general meeting, held at la Plata in November 1906, and was accepted.
We must add that at the present time the Provincial Government is considering a scheme designed to infuse new life into the Mortgage Bank. This system consists of founding a limited company in which both public and private interests would be represented; a state of affairs very like that already in existence, and yielding excellent results, in the case of the Bank of the Province of Buenos Ayres.
The great official establishment for loans on mortgage in the Argentine is the Banco Hipotecario Nacional. This bank grants loans upon real estate in the capital, provinces, and national territories. It issues cedulas which bear an interest of 5 to 6 per cent., with an amortisation rate of 1 to 4 per cent., which are quoted at about par on the market, so that the holder, after the deduction of expenses and commissions, obtains a satisfactory interest.
The value of cedulas in circulation at the end of 1908 amounted to £11,871,108 in paper (actual value) and £1,876,530 in gold, respectively.
In addition to these official establishments, there are various private companies, founded by means of foreign capital, which issue loans on real estate in the capital of the Republic and on land in some of the Provinces.
According to our information, these companies employ a capital of nearly £15,000,000, divided as follows:
| Argentine Railway Loan Co., Ltd. | £827,600 |
| River Plate Trust Loan and Agency Co. | 2,705,422 |
| Société de Crédit Foncier de Santa Fé | 511,120 |
| Mortgage Co. of the River Plate | 1,997,717 |
| River Plate and Gal. Investment Trust Co. | 504,000 |
| Dutch Mortgage Trust of the Rio de la. Plata | 286,194 |
| Argentine Mortgage and Agricultural Co. | 80,000 |
| The Standard | 541,488 |
| Crédit Foncier Argentine | 3,016,340 |
| Compagnie Pastorale Belge Sud.-Americaine | 1,350,102 |
| Société Hypothécaire Belge-Argentine | 1,583,130 |
| Banque Hypothécaire Franco-Argentine | 1,487,160 |
| Société Rurale de Bahia Blanca | 3,960 |
| —————— | |
| £14,894,233 | |
| ========= |
High as these figures are, however, they represent only a portion of the foreign capital employed in this class of transactions, for considerable sums are advanced by private persons who wish to obtain the high interest obtainable.
These companies lend only gold, that they may escape the fluctuations of the paper-money market, and usually limit their operations to dealing with properties in the capital or in the Province of Buenos Ayres, doing business with the rest of the country only in a very limited degree. Although Argentine legislation is extremely advanced in the matter of loans and mortgages, the lender fears, in the case of certain provinces, to encounter difficulties in practice, or delays of legal procedure in the case of foreclosing. The interest on mortgages, which during the year 1908 was maintained at about 9 per cent., is to-day showing a tendency to fall, on account of the abundance of money in the Buenos Ayres market; the rate is now as low as 8 per cent.
It is in the capital of the Argentine that mortgage operations are most active. During the decade 1889-1908 the amount of loans upon property reached the sum of £37,241,000. This amount was lent upon 40,996 properties; and of this total £7,603,000 was lent in 1908 alone. The mortgages effected upon rural properties, throughout the entire Republic, for the years 1903 to 1907 inclusive, amounted to £37,920,000, and the mortgaged property amounted to nearly 80,000,000 acres. In this total the Province of Buenos Ayres was represented by £16,880,000; that of Santa Fé by £3,240,000; that of Córdoba by £6,240,000.
The Argentine Republic possesses one of the most perfect systems of mortgage in existence among modern nations. To prove this statement we need only explain that the Argentine laws do not recognise secret mortgages; nor do they admit any privileges in favour of married women or minors in respect of special mortgages. Neither does such a thing exist as a general mortgage, nor are there any privileges taking precedence over the right of the mortgagee.
The mortgage, like every action which affects or modifies the right of the proprietor over immovable property, must be signed before a notary and registered by the Conservator of Mortgages. Before drawing up the deed, the notary must, as in the case of sales, demand a certificate stating whether the property is or is not free from charges. Although the right of the proprietor is perfect as to possession, the law tends to give property a certain degree of mobility; thus for this reason the term of a sale with power of redemption is three years, the term of a lease ten years, and that of the registration of a mortgage ten years; but all these terms may be renewed upon expiration. The term of ten years in the case of mortgages does not affect the Banco Hypotecario National, nor the Banque Hypothécaire de Buenos Ayres, nor the Banque Hypothécaire de la Capitale, in virtue of the special laws which created these institutions.
The Bourse or Exchange.—The first Commercial Exchange or Bourse, or let us rather say the first institution to fulfil the functions of an exchange or Bourse, for we cannot give that name to the market which formerly existed in Buenos
Ayres, was inaugurated in 1810 under the name of the Chamber of Commerce—Sala de Comercio. It was composed exclusively of members of the English colony, and offered them, besides the usual advantages of such establishments, the attraction of a well-furnished library.
The documents available do not tell us how long this institution lasted, nor whether at a later period it opened its doors to the Argentine element nor whether, being finally transformed, it served as a basis for the organisation of the exchange as it is to-day. The only thing certain is that in July 1834 the first members of the association met in the Via San Martin, there to establish the Bourse, of which the inauguration took place on the 1st of December following.
Before this date there was a financial group known as the “Sociedad Particular de Corredores,” which was known as the Camuati, and which busied itself with mercantile transactions.
The Bourse retained its original premises until the year 1862, when it was installed in another building in the same street, at present occupied by the Caisse de Conversion, or Bank of Exchange.
Some years later, the premises being too small, it was proposed to build other and far larger premises, sufficient to meet the ever-increasing demands of the institution. In 1881 an extraordinary general meeting was held, with a view to forming a company to undertake the construction of premises to house the “Sociedad Bolsa de Comercio.” But the company was not formed until 1883, when it acquired the site on which the Bourse now stands; and its official inauguration took place two years later.
Since then the Commercial Exchange has enjoyed a period of continued prosperity; it is to-day the first commercial centre of Latin America. It exercises a great influence over the commercial and economic life of the Republic. It is the sole establishment of its kind, having judicial powers, open to all mercantile transactions, and establishing, under the stress of supply and demand, the prices of the products of labour or commerce. Having the power of fixing the value of merchandise by quotations of
paper-money, it is, more than any other institution, liable to exceed its functions; but it bears within itself, in its admirable organisation, the means of repairing its own errors and of remaining the faithful regulator of prices and values.
The most eloquent commentary upon the importance of the operations effected by the Bourse de Commerce is the simple enumeration of their value at various periods, for we then realise the enormous development which they have achieved in a period relatively short. In 1886 the total of the business done was $173,000,000 paper, £34,600,000 face value; in 1887 it was $254,000,000 (£50,800,000); in 1888 $432,000,000 (£86,400,000); in 1889 $469,000,000 (£93,800,000). The total value of all business effected, liquidated or not, cash or credit, during the years 1890 and 1891, amounted to $18,000,000,000 (£1,584,000,000) and $7,000,000,000 (£616,000,000), respectively.[92]
[92] The values before 1900 are face values, as the actual value of the piastre note fluctuated. They must not be taken as actual values any more than in the case of Indian rupees.—[Trans.]
These figures, in their simplicity, cover the history of an interesting period of the financial life of the country. The wave of speculation which turned all men’s heads began to rise as early as 1887, and in 1891 was at its greatest height; it then crumbled into foam, having shattered the most deeply-rooted of banking houses, compromised the national credit, changed brilliant illusions into melancholy realities, and sown desolation and ruin in many a home. After the catastrophe the total value of business done rapidly fell, and we see it falling violently from one year to another—from the $18,000,000,000 of 1890 through the $3,376,000,000 of 1895, to the $835,000,000 of 1900; a year which experienced a condition of affairs which was destined to produce a beneficent influence upon the economic life of the country.
In this total of $835,000,000 of paper-money we find that transactions in gold amounted to $774,000,000 paper money, corresponding to $66,800,000 of gold negotiated; while in 1899, the whole business done in the Bourse still amounted to the respectable sum of $1,295,000,000 paper, of which $1,234,000,000 represented operations in gold. From one
year to another the total sum of the business transacted in the Bourse had diminished by $460,000,000 (paper).
The principal cause of this notable decrease was the “law of monetary conversion.”
This law, which has been in force since 1890, fixed the value of 44 centavos, or $44 gold, for the future conversion of paper-money, and enacted that the Caisse de Conversion should receive the gold and deliver paper, and vice versa, at this same rate: a rate equivalent to 227·27 per cent. The effect of this reform was thus, if not to destroy, at least very largely to limit unbridled speculation, which made itself especially felt in the value of the paper piastre.
Speculation in gold being suppressed, the volume of business transacted on the Bourse de Commerce of Buenos Ayres grew gradually less and less, falling finally, in 1904, to $37,312,000 paper, of which $19,968 stood for gold.
After 1904 the total sum of these operations was still further reduced, the figures for 1908 being incredibly low. Thus the total, which in 1905 had attained £45,400,000, rose to £57,800,000 in 1906, fell in 1907 to £16,880,000, and in 1908 to £12,560,000. To-day the activity of speculators is concentrated upon operations in mortgage bonds and the shares of various companies; each class of operations amounting to some £5,000,000. These figures show that the Bourse de Commerce loses from day to day some part of its importance as the regulating centre of mercantile transactions; but it would be an error to measure the economic vitality of the Republic by the amount of business effected on the Bourse, since an examination of the situation shows us that the Argentine has never known a period of more obvious prosperity.
Having explained the new phase upon which the Buenos Ayres Bourse has entered, we must now consider its organisation and its usages, and the regulations under which it operates.
In the first place we must remark that the Bourse is not an official institution, but a private establishment, founded and supported by a limited liability company, the “Bolso de Comercio,” which is recognised as a judicial body.
In contrast to other Exchanges, and that of New York in particular, the number of shareholders is unlimited, and varies from time to time. In 1886 there were 2959; in 1891, 4901; in May 1905, 3709. To become a member of the Bourse one must be presented by two shareholders, admitted by the Council Chamber or Committee (Chambre Syndicate), and must pay a moderate entrance fee, as well as an annual subscription.
According to its rules, the object of the Bourse de Commerce is to “offer a place of meeting to these members, where they may discuss and effect all manner of lawful business; and to facilitate and negotiate all commercial operations by giving them security and legality.” It also undertakes to represent commerce and production in general before the authorities of the country, or before private undertakings; it supports petitions relative to their interests, in order that laws about to be proposed, or those which are being adopted, shall be equitable and shall favour the development of commercial transactions. Its object is both to ensure the unity of commercial usages, and in case of need to take the initiative in all questions of economics which may affect commerce in general.
The management of the Bourse is effected by the Council Chamber—the Chambre Syndical de la Bourse, which is entrusted with the general and official representation of the institution. It is this authority which permits or refuses the official quotation of all stocks, shares, loans, etc., issued according to the laws of the country of their origin and by legally constituted bodies.
The functions of the stockbroker can only be fulfilled by persons previously authorised by the Council Chamber, after they have accomplished certain formalities, and have proved whether they have attained their legal majority, have experience of business, and have enjoyed a good reputation, all of which must be guaranteed by three men of business of known responsibility. The number of such brokers is not limited, and may be increased or decreased according to circumstances. In 1905, for instance, their number was 385. They are not obliged to give security nor to make any deposit as guarantee before practising; they have merely to pay a small monthly subscription.
The regulations of the Bourse contain severe provisions against brokers who infringe any of the numerous prohibitions affecting them; such as accepting orders from clients whose identity has not been proved; from persons known to be insolvent, or from incapable persons; or acting as intermediary in negotiations where there is reason to suspect that the parties involved are not proceeding seriously. Brokers who infringe these rules or others—who do not, for example, meet their engagements—are suspended by the Council Chamber of the Exchange.
All operations must be declared in an audible voice by the stockbroker to the recorder (annotator), in order that the latter may inscribe them upon the blackboard. The vendor and the buyer must then exchange memoranda, in order that the transaction shall be definitely confirmed and made valid. All transactions effected on exchange[93] during official hours are copied, with the prices, from the blackboard into the Journal of Sales; these latter being also published in the Boletin de la Bolsa de Comercio; or, as we should say, the Stock Exchange Bulletin. The settlement of all transactions concluded is effected through the Council Chamber, with the aid of the Bureau de Liquidation, or Settlement Office, under the supervision of an official liquidator, appointed at a general meeting of the brokers, who charges a percentage on the settlements which he effects.[94]
[93] Literally, “at the basket.”—[Trans.]
[94] The brokerage in 1⁄4 per cent. on the sale or purchase of bonds, shares, debentures, etc., and is charged on the face (or nominal) value of the amount changing hands. A charge of 1⁄2 per cent. is also made on all operations on Exchange.
Such are the principal rules of the organic charter which regulates the operations of the Stock Exchange of Buenos Ayres, and such is its method of operation. Let us now examine the total amount of its operations during the period 1895-1908, and how they may be analysed:—
| Year. | Piastres (Paper). | Pounds (Sterling). |
| 1895 | 1,244,602,058 | — |
| 1896 | 1,383,472,329 | — |
| 1897 | 1,306,531,655 | — |
| 1898 | 1,219,304,846 | — |
| —————— | —————— | |
| Carry forward, | 5,153,910,888 |
| Year. | Piastres (Paper). | Pounds (Sterling). |
| Brought forward, | 5,153,910,888 | |
| 1899 | 1,295,304,846 | — |
| 1900 | 834,982,214 | £73,478,434[95] |
| 1901 | 1,003,709,984 | 88,326,476 |
| 1902 | 841,627,532 | 74,063,222 |
| 1903 | 383,905,622 | 33,783,694 |
| 1904 | 423,957,361 | 37,308,227 |
| 1905 | 515,607,316 | 45,373,454 |
| 1906 | 655,624,566 | 57,694,961 |
| 1907 | 192,130,565 | 16,907,489 |
| 1908 | 143,466,502 | 12,625,052 |
| —————— | ————— | |
| Total for 14 years | $11,444,377,390 | (9 Years), £439,561,009 |
| =========== | ========== |
[95] These values are given only from 1900, when the value of the piastre was fixed.
Of this total an amount of 8724 millions of piastres, or 76·2 per cent., applies to metallic operations, which kept speculation alive until the monetary law of 1899 once and for all arrested the varying values of paper money. If this law had had no other effect, this result alone would have justified it as wholly beneficial to the interests of the nation.
In the quotations of the above period mortgage bonds hold the second place; they represent about 5 per cent.
Being dominated by the spirit of speculation, which expended itself principally, indeed almost exclusively, upon monetary transactions, the Bourse had no time to devote itself to more legitimate business. Thus the public funds represented only some 3 per cent. of this total; then came shares and debentures of various companies; and last of all banking shares, the amount of these being insignificant.
The nominal value of all the securities which were quoted on the Buenos Ayres Bourse in 1907 amounted to $554,791,932 paper and $127,763,525 gold, or an actual total of £74,374,395, and an analysis gives the following results:—
| Dollars (Paper). | Dollars (Gold). | |
| Public funds and stocks | 157,025,295 | 35,000,000 |
| National Mortgage Cedulas | 129,383,100 | 11,443,600 |
| Provincial Mortgage Cedulas | 129,745,642 | — |
| Limited Companies: shares | 136,657,520 | 78,416,320 |
| Debentures and certificates | 1,980,375 | 2,903,605 |
| —————— | —————— | |
| Totals | $554,791,932 | $127,763,525 |
| ============ | ============ |
These two totals together are equal to a sum of £74,374,395.
In the first edition of this book we gave a summary of the nominal value of all the stocks quoted on the Buenos Ayres Stock Exchange in 1904; the sum amounted to 462 millions paper and 38 millions gold, or a total of £52,256,000; so that in three years these figures had increased by 93 millions paper and 70 millions gold, or over £22,000,000.
It is permissible to hope that in the course of time the Buenos Ayres Exchange will attain a far greater development, and that it will even exercise some steadying influence on the prices of the public funds. To-day their real market is in London, Paris, or Berlin, so that the credit of the country is affected by the disturbing events of European markets, while the Buenos Ayres market is devoid of any compensating effect.
However, it may be observed that when a country begins to grow rich and to have more assets at its disposal, the public funds placed abroad show a tendency towards repatriation. We have seen this in the case of Italy and Austria, which had an important foreign debt in France, and have considerably reduced it during these last ten years of economic progress.
It will certainly be the same in the case of the Argentine when, thanks to a series of good harvests, its available or fluid assets have increased beyond what is absolutely necessary for the development of agriculture. Investments will be made not only in land or in live stock, but money will be invested in stocks and shares as well, and notably in the Government stock of the country.
As a symptom of this tendency, we may mention that interest on the foreign debt, the coupons for which have hitherto been payable abroad only, is now payable in the Argentine as well, in order to facilitate the purchase of this stock in the Republic as a staple investment. The internal debt is also the object of more extensive operations, now that the seventeen loans which constituted the old debt have been unified, and now that a special call is to be made upon the internal credit of the county with a view to undertaking vast public works. To enlarge the market for this Government stock the authorities have just decided that its coupons shall be payable on the principal foreign markets.
Finally, in the course of time the market for industrial stock, bank stock, and railway shares will gradually become less restricted, in proportion as the public fortune becomes more extensively subdivided, instead of being concentrated, as it is at present, in a comparatively small number of hands. The only thing that may compromise this future is the excessive speculation which we find, unhappily only too often, in a country where gambling is a dominant instinct. This excess, with its natural sequelæ in the form of financial crises, might end by driving all serious clients from the Bourse, and in destroying the excellent elements which Buenos Ayres possesses for the creation of an important financial market.
Limited Companies.—In the vast progressive movement which increases in force yearly throughout the Argentine Republic, the Bourse of Buenos Ayres has yet another part to play: that is, to facilitate the formation of collectivities of capital under the form of joint-stock companies, since the spirit of enterprise exhibits itself by preference under this form. Collective effort is to-day more and more replacing individual effort; the Argentine must therefore learn how to employ this weapon of associated capital in order to promote new undertakings, and, by popularising movable values or securities by the help of the Bourse, to raise up new resources to the country’s profit.
Our study of the chief manifestations of Argentine life and its commercial machinery would thus be incomplete if we did not give some account of the public companies of the Argentine, the legal formalities demanded of them upon their formation, their mechanism, and the vicissitudes through which they have passed at various interesting periods of Argentine history.
The constitution of public companies is subjected by the Commercial Code to rigid formalities, in accordance with the most advanced principles of universal legislation upon such matters, in order to assure their proper operation as well as the interests of the shareholders.
The indispensable conditions of the formation of such companies are the following: the number of associates must not be more than ten; the capital of the venture, or its first
issue, must not be less than 20 per cent. of the total, and must be entirely paid up; the shareholders must contribute 10 per cent. of the capital actually subscribed, a sum which must be deposited in an official or private bank; the company must be constituted for a fixed term, and must be authorised by the Government, which cannot refuse its authorisation if the functions, organisation, and articles of the company are in conformity with the code, and if its object is not contrary to the public interests.
To gain the right to publish the prospectus appealing to possible shareholders, the company must also conform to the following rules: it must indicate the date of the provisional formation of the company, must mention the place where the charter of the company was drawn up and registered, and what journals have published the articles and the Governmental authorisation; it must give details of the object of the company, its capital, the number of shares, and the conditions of subscription and payment; it must explain the exceptional advantages claimed by the founders of the company, and convoke the subscribers to a general meeting, which must take place within three months, at which the company shall be definitively constituted.
The law formally forbids the founders of limited companies to reserve any sum or advantage whatever, in the form of shares, debentures, or founders’ shares, in exchange for concessions gratuitously granted by the Government. It concedes them a maximum of 10 per cent. of the capital, or 10 per cent. of the realised and liquid profits during a term which must not exceed ten years.
The founders or administrators of any company are responsible, jointly and severally and without any limit, for all that has been done in the name of the company up to the time of its definitive constitution, without appeal against the latter, if it take place.
If the company be finally constituted, the expenses and the consequences of all proceedings undertaken to that end by the founders will be charged against the exclusive account of these latter, nor will they have any resort or recourse to appeal against the subscribers.
In the case of limited companies which are not legally
constituted, the founders, administrators and representatives are, conjointly and severally and without limit, required to restore any sums they may have received for shares issued, and also to pay the debts of administration and the losses that may be incurred by third parties by the failure to fulfil obligations contracted in the name of the company.
Once a limited company is constituted, its administrators contract no common or personal responsibility for the engagements of the company, but they are responsible, personally and conjointly, to the company and to third parties, for the failure of execution or the improper employment of their mandate, and also for the violation of laws, regulations, and statutes.
All companies are obliged to appoint at least once a year a censor chosen by the general meeting, who directly represents the shareholders, and who supervises the proper conduct of the company, and the accomplishment of the legal formalities which concern it.
The Commercial Code contains many other enactments which tend to ensure the correct and legal constitution, as well as the proper conduct, of limited companies: but those we have cited will suffice to show that the law-maker has striven to use the utmost foresight, with the object of guaranteeing the interests and the capital confided to such companies.
Despite this prudence and foresight, we are forced to recognise that the institution of such companies, which constitutes a powerful economic lever when they are correctly administered and established with a view to commercial and industrial utility, is at present discredited on account of the abuses committed in its name at the time of the great crisis of 1890.
The institution of limited companies is so intimately connected with the financial disasters of that period that its history is to a certain extent the history of speculation, and it has suffered all the vicissitudes of speculation.
In 1882, when Buenos Ayres was federalised and became the permanent capital of the Republic; when public tranquillity was confirmed, with the conviction that it would be long before it was disturbed; when the public expenditure
was increased, thanks to the employment of credit and the issue of paper currency; when, in short, the prospect of universal prosperity had awakened energy and initiative; there began to pass through the country a light breeze of speculation, which was soon to become a tempest; and the limited company, which until that time had existed in a modest, inconspicuous degree, quickly assumed a greater importance, with a more definite, more concrete form.
The companies floated in 1882 and in the three following years were not very numerous, and their capital was insignificant as compared with the capital of those that followed: yet a very marked impulse towards progress was already perceptible, as much in numbers as in capital. Thus the sum of 10 million piastres, the amount of the nominal capital declared by the limited companies in 1882, rose to nearly 13 millions in 1885.
But as the fever of speculation and affairs grew higher and ever higher, thanks to the aid of the credit too liberally granted by the banks, whether mortgage or money-lending banks or otherwise, and as at the same time all the paper thrown upon the market was immediately absorbed, to the great profit of those who issued it, the limited company followed the upward march, although this movement did not always correspond with the idea of progress. Thus we see with surprise that from 13 millions of piastres (paper) in 1885, the capital of the companies rises to 34 millions in 1886, to 95 millions in 1887, to 196 millions in 1888, and in 1889 to 378 millions; and in these two latter years the fever has reached the period of greatest danger.
In 1890 the economic-financial crisis, long delayed by artificial means, burst over the country with terrible force, and a revolution broke out simultaneously. Under the weight of this double disaster the banking houses tottered on their foundations, soon to fall in ruin; credit, personal or secured, vanished absolutely; the paper currency, already depreciated, fell to a still lower value; industry and commerce were arrested in their progress, and the whirligig of speculation, which had so far gone merrily but giddily round, came to an abrupt standstill. As a natural reaction, the formation of companies, which speculation had stimulated to excess,
was stricken with an almost complete paralysis; so that we see the capital of these companies, which in 1889 had risen to 378 millions of piastres, fall in 1890 to 190 millions, and finally, in 1891, to the modest sum of 13 millions.
These, rapidly denoted, are the salient lines of a sketch of the vicissitudes of speculation and the affairs of the capital during the last ten years; a picture which begins with the rosy tints of hope and illusion, and ends in the sombre colours of bankruptcy and ruin.
The branches of trade and industry which are most largely represented by the limited company form another question of interest. It is certainly very difficult to discover the true social idea which these companies pursue at flotation, for behind pompous titles which seem to express a true national progress, such as the construction of harbours, the foundation of colonies, the building or management of railways or tramways, the opening up of new districts by means of canals, etc., there lurks, only too often, a mere scheme of speculation in shares or land. Judging, however, by the actual operations effected by these companies during the course of their existence, we can class them according to the object declared at the time of flotation, and at the same time give the statistics of their capital.
The capital of all the companies floated since 1882 amounts to 950 millions of piastres (paper), or £83,600,000. Of this sum £14,320,000 was frankly intended to promote speculation in land; £13,200,000 was applied to railways (including the purchase of the railways of the Province of Buenos Ayres); £12,144,000 to insurance (a form of employing capital much in vogue at the time), and £12,056,000 to banking affairs, which in some cases were only the mask of speculations in stock and in land.
To make our sketch complete we ought to give, instead of the nominal capital declared by these companies, the capital actually paid up; as we know that it is not every company that has at its disposal the sum mentioned in its articles, but that many have to be content with the payment of one or two instalments, while others cannot even find subscribers. Knowing these data, and being cognisant of the present condition of the companies, we should then be
able to estimate the amount of loss which they have inflicted upon the country.
Unfortunately this investigation is impossible, for lack of information, and we can only state that millions of pounds of private fortunes were lost or stolen in the limited companies of the period.
After the crisis of 1890 there was, as there was bound to be, a great mental reaction; especially in matters relating to the institution of the limited company; and the latter was so discredited that for several years not a penny could be obtained for investment in undertakings of the kind.
But it was not possible that such an important element of economic progress should be entirely suppressed on account of the abuses committed in its name. Very slowly it came into favour once more; but thanks to the lessons of experience the new companies were concerned in the foundation of undertakings of genuine industrial and commercial value. Thus the companies floated in 1902, 1903, and 1904 represented a nominal capital of $803,979,000 paper (£70,950,352 actual value), and those founded from 1905 to 1908 (inclusive) had a nominal capital of £72,573,445, which may be analysed as follows:—
| Land | £1,676,959 |
| Railways | 6,059,791·7 |
| Insurance | 13,593,981·5 |
| Banks | 9,251,958·1 |
| Industry | 7,295,793·2 |
| Commerce | 6,856,762·3 |
| Agriculture and stock-raising | 7,218,579·7 |
| Navigation | 440,000·0 |
| Colonisation and Immigration | 203,996·3 |
| Tramways | 5,113,303·1 |
| Hygiene | 564,759·5 |
| Telephones and telegraphs | 1,349,983·8 |
| Mines | 7,332,286 |
| Mortgage Companies and Real Estate Companies | 4,098,448·1 |
| Gas and electric lighting | 759,249 |
| Savings Banks | 667,598·8 |
| —————— | |
| Total | £72,573,450 |
| =========== |
The mere list of the above investments is enough to convince us that the day of merely speculative companies
is over, when shares were mere travesties, more or less justified, as in the years which preceded the crisis of 1890. Now speculation in land is represented by a sum of less than £1,700,000; while insurance is represented by over 13 millions, banks by more than 9 millions, industry by 7 millions, agriculture by 7 millions, and mines by about the same amount. These latter investments belong to the category of “eruptive” stock, for, like a volcanic eruption, they rise suddenly to great heights, to fall, a little later, leaving nothing but smoke and ashes.
In the matter of company formation, as in the matter of operations of the Bourse, we see that the Argentine has re-entered the normal path of progress. Under these two manifestations, which reflect the economic activity of the country, the tide of affairs continues to increase, but the spirit of speculation no longer turns it aside, no longer undermines the organisation of the nation’s commerce.