# Mexico's dilemma/Chapter 2

CHAPTER II
The Mexican puzzle
TROUBLE and revolutions are two things which can be started without money. It doesn't require money to start a street fight nor does it require gold to upset a nation.
This is not more true of any place than of Mexico. The seven years of strife which the people south of the Rio Grande have had are not due to a fat treasury. But Mexico has reached the place now where it knows that money is necessary to end a revolution.
More than a century ago when France was experiencing the internal disorders which infest Mexico a revolutionist remarked that "Revolutions are not made with rosewater." To-day the Mexicans will tell you that the evils of a revolution are not washed away with perfume, either. This requires money.
Early in the summer of 1917 the Mexican Government invited Mr. Henry Breure, former City Chamberlain of New York, and two expert accountants, including Mr. Thomas W. Lill, who spent nine years helping to reorganise the Philippine Government, to establish business methods in ​the governmental departments. One day in July the American commission went to Guadalajara, the centre of the ranch section, with an official escort of Mexicans. After dinner one evening an American asked a representative of the Carranza Government what the revolution had accomplished for the Mexican people. The officer explained what he thought the results of the revolution would be, but the American pressed him for an answer to his original question. Reluctantly the officer admitted that, so far, nothing had been accomplished.
Mexico has reached the crossroad in the path of the revolution. Since 1910 she has had nothing but trouble and although it was not begun with money it has cost the government and the people millions of dollars in gold and property, thousands of lives and the loss of her international prestige which cannot be measured in pesos. Today most of the fighting is at an end. There are bandits in some sections of the Republic, but their raids are becoming fewer each month. Mexico City, itself, is as busy and active as New York, but there is a financial crisis, which, although not evident upon the surface of things, is destined to mark the climax of the revolution.
I arrived in Mexico in July to look at the political, economic, social and revolutionary puzzle from the inside. I saw many phases of it in Monterey, San Luis Potosi and Mexico City, this puzzle which is still puzzling Mexico. I have been ​told that not even President Carranza knows how it will be solved, although at least two solutions are possible.
When I crossed the international bridge at Laredo, Texas, and sauntered through the streets of Nuevo Laredo, a midget donkey, carrying a long-legged peon, trekked around the corner of the telegraph office. The Mexican had to hold up his feet to keep from dragging them in the dust. The beast was so small, and the man so tall, that head down it might have walked between his legs. Jostling behind the pair was a small "express" wagon such as American boys play with. It was loaded with grass, sufficient for about one meal for a hungry donkey. A string which the peon held was tied to the wagon tongue. And the beast was thus, presumably, hauling its load and food to the hovel which was their home.
I described this incongruous sight to an American who was en route to Mexico with me, whereupon he remarked:
"How typical of Mexico to-day—the old Biblical ass, the American toy and the lazy peon. Since the revolution all the progress Mexico made under Diaz has disappeared. Mexico to-day is stagnant."
A few minutes later, however, I went through the Nuevo Laredo freight depot with Mr. Randolph Robertson, U.S. Vice Consul at Monterey. Automobiles, food, machinery, household goods and thousands of different manufactured articles ​from the United States were packed within its four walls awaiting transportation to various parts of Mexico. More than two hundred Mexicans were busy loading the freight cars on the siding. In Laredo, Texas, according to American officials, there are 250 freight cars loaded with goods for Mexico awaiting shipping facilities.
In Monterey during April, May and June the American consulate records show that the imports and exports of that district were greater than at any time in the history of Mexico.
According to the evidence in Nuevo Laredo and Monterey, Mexico is not only not standing still but is making vigorous business strides forward.
There are three ways of looking at Mexico. One is to view the past with all its rape, murder, robbery and banditry; its destruction and misery. The second way is to observe the present with its grave problems, its ignorance and hatred. The third way is to peer into the future with its unlimited possibilities for ruin or success. I was not in Mexico during its Reign of Terror, but I saw some of the results—the razed cities, the destroyed railroads and foreign property, the poverty and evidences of atrocities. I went to Mexico to report the present and to narrate in a broad way what may be expected in the future. It is the to-day of Mexico which will determine the tomorrow, and it is the to-morrow of Mexico which will decide whether Mexico is to be ruled by Mexicans or whether the United States must intervene ​to establish order and protect the business interests of her citizens and those of her Allies.
I went to Mexico on the Honeymoon Special which took Ambassador Henry Prather Fletcher and his bride to the ancient capital of the Aztecs. From the sandy banks of the muddy Rio Grande to the rainy plateau of Central Mexico Mr. Fletcher travelled like a conquering hero. In the receptions which were accorded him, if they were not as resplendent as similar functions in the United States, there was evident a good-will and there was present more enthusiasm than had been shown any Americans since the days of Diaz. Mr. Fletcher's return was triumphant despite the fact that the military salutes were crude and the music even cruder. When the Ambassador crossed the international bridge a Mexican cannon, hidden in the bushes of Nuevo Laredo, saluted, but there was a long time between shots. As the official representative of the United States he should have received nineteen salutations instead of five, but the ambassador was so busy exchanging greetings he did not notice this until I asked him whether the embargo had been raised on ammunition for saluting purposes. It seems that because of the famous Tampico incident the Mexicans are not permitted to have fireworks.
​effervescence of enthusiasm, when the ambassador was being hugged by an unusually large number of Mexican officials, the band played the Hesitation Waltz.
One travels through Mexico to-day with an "exploradoro." Bandits are still operating along the railroad lines and it is not safe to be without "protection." The "exploradoro," which preceded the Honeymoon Special, was made up of two armoured cars filled with soldiers. In two day coaches on the Special itself were two groups of soldiers. One car contained the soldiers travelling with their families, in the other were men in uniform. On the back platform of the private car, which President Carranza used when he was First Chief of the Constitutionalists, stood three soldiers armed with heavy Mexican rifles. One day when the train was nearing Mexico City an American asked a member of President Carranza's staff about the Mexican rifles. The Captain replied they were "very good" except that they were "easily overheated." Then, adding that each gun was loaded with a minimum of ten rounds, he lifted one of the weapons to exhibit the ammunition. The rifle was empty! He examined the second. It was just as harmless, and when the third was opened the situation became embarrassing. The guard on the rear platform was without ammunition. The guard could not be condemned because the Carranza Government has needed the sinews of war and Mr. Fletcher ​was just returning from Washington after having persuaded President Wilson that the embargo should be raised.
The bandits, however, which the ambassador saw on the return to his post, were perfectly harmless and the "exploradoro" and "armed" soldiers were not needed. At various points along the line one sees bandits hanging from telegraph poles and trees, swaying in the wind like pendulums. The men who tied these fellows up did a good job of it. They will not drop until they decay, when the wolves will take charge.
From the Texas border to Monterey one sees nothing but sand, cactus plants and dust. Along the route there are "specks" where once stood villages, villages which passed away during some stage of the revolution. The depots and homes are destroyed. The people, who remained, are like animals. They live in the ruins or under the blue sky, day and night. They are clothed in garments which after hard wear would have been discarded five years ago by almost any one else. Many children run with only a rag round their waists. The women and men alike are barefooted, or, perhaps to protect tender feet, some still have the sole of a shoe which is tied to each foot with strings. Almost all live by selling food to the travellers who must go this way to Monterey and Mexico City. Eggs, cheese, pancakes, water, milk, coffee, beans—the national dish—and whatnot, are peddled at so many centavos apiece. Here is ​poverty without misery. These people are happy and contented. They have never seen any other living. They have no schools. There are no churches. Civilisation to them is a railroad train. Business is a railroad train. Life is but the hours between trains.
As I stood on the siding at Querétaro one day gazing at this awful aspect of life, a young Mexican, who had been educated in the United States, remarked to me:
"You know, if these people could go to the states for a few years they would come back different people. They don't know any better. They have had no opportunity."
While the engine was taking water at Querétaro and I sauntered about the train I met an old American railroader who had been working on Mexican railways twenty years. Four thousand dollars, his life savings, which he had invested in a hotel in a town near there, disappeared one night in a fire when the bandits came to burn and plunder.
"These bandits," said he, "will never stop until there is food enough for all the people. There would be no bandits if there was work for the men and food for their families. You know what the Mexicans say around here. Oh, I know them and they don't know I'm an American or my life would not be worth that"—and he snapped his fingers. "But I make good money and I travel up and down these lines. You know these people say ​that all the food in Mexico has to be sent to the United States to feed the soldiers and that if the United States had not gone to war there would be plenty of food in Mexico."
While we were standing in the sun's rays, an old crippled woman with her blind daughter came up begging for money.
"Don't give that old hag anything," said my companion. "You know, she gouged the eyes out of that kid so she could get more money begging. Yes, sir. That's what she did. Blinded that little girl of hers."
Then cursing in Spanish he kicked the sand with his foot and forced her to wabble away. I marvelled at the flood of his words. It must require twenty years' residence to be able to curse in Spanish and do it properly. I had had a book called "Spanish in a Week" for more than a month and about all I could do was to buy a cigar and order eggs and bacon.
After fifty-six hours of travel and delay, the Honeymoon Special reached Mexico City.
The city to-day is surprisingly peaceful and busy. Hundreds of automobiles and carriages race through the streets—there appear to be no speed laws in force and Mexicans drive their cars with the same enthusiasm that a child plays with a new toy. The avenues Cinco de Mayo (the Fifth of May), Francisco I. Madero and Avenida Juarez are as busy as Broadway or State Street, though the people look more like those along the ​Bowery and Halsted Street. Poor and peon, middle class and foreigner, rub elbows on the sidewalks as newsboys run through the streets with extras.
But what incongruous sights one sees! I rode out the Paseo de la Reforma, the Riverside Drive of Mexico City, to see the palatial homes of the Cientificos, those great houses where the old followers of Diaz lived like monarchs. In the parkways along the sides of the street nurse girls were wheeling the babies of the wealthy. On this thoroughfare there were no signs of poverty, although the street pavement itself was a motly compound of holes and pavement and the carriage bumped and jostled from curb to curb. A little later I walked up Avenida Juarez where beggars seem to crawl out of every doorway. Not far from the Spanish Embassy, a big palatial structure, I paused at the barracks of the second infantry regiment to listen to the band and to watch the soldiers saunter here and there with nothing to do but "kill time," smoke cigarettes and talk to their wives and children who are as numerous as the soldiers themselves. On the curb, in front, sat a big, fat Mexican woman smoking a brown cigarette. A baby, just able to walk, stood in the street before her, sucking at its mother's breast and punching it with its bony fists in an effort to extract the morning breakfast. A soldier handed the woman a cake. She tied this in a soiled handkerchief where she carried her money and other ​valuables and continued to puff at the cigarette.
In front of the National Palace two companies of soldiers in impossible field uniforms, some barefooted, and all dirty, paraded behind a military band.
People crowd into the shops. There is so much business shop-keepers are as independent as an American firm without competition. On the side streets some policemen or boy-scouts are drilling and receiving instructions from officers.
Aside from the newspapers and the posters in the windows one would not suspect that there is a war in Europe.
From the shop windows one learns that there is a great war in progress, and one learns it from the Germans. In many windows are large maps of Europe showing Germany and the Central Powers in red and the Allies in black. The neutrals are "yellow." The map is labelled: "The Defensive War of the Central Powers." It is a clever bit of German propaganda. Although only about two out of every ten Mexicans can read and write, all can understand pictures. This map, even without a heading, tells a story which the Mexicans can comprehend.
Another cartoon pictures a bull fight. All bulls representing the Allies are defeated and the German bull defiantly gazes at Uncle Sam, who is standing at the edge of the ring. A man representing Mexico is standing beside Uncle Sam and urging him not to get into the ring. ​In several jewelry shops I saw placards, or what were supposed to be photographs of "wild men from Australia," and the label underneath said: "These wild men of Australia are fighting for England for the civilisation of Europe."
There are more Japanese shops in Mexico City than I had expected to find. Although there are three or four in the business district, the big majority are in the suburbs. In offices throughout the city one sees hundreds of Japanese posters, advertising Nipponese goods. In the only foundry in Mexico City which is making war munitions is a big, modern Japanese factory, recently imported from Japan. When the present government found it impossible to obtain war supplies from the United States, a Japanese commission was invited to Mexico and this plant was erected by the Far Easterners. The large wireless tower near Chapultepec Park I saw being repaired. A Mexican officer told me when it was finished it would be powerful enough to communicate with Japan. Although American observers have heard this, they consider it improbable.
Six months before I arrived in Mexico the present government was exceedingly suspicious of Americans and especially of the United States Government. When an American during my stay there called upon a high government official and discussed the question of a loan this official remarked:
"The American people and the Mexican ​people are all right, but the governments are all crooked."
To a great extent Ambassador Fletcher, who speaks Spanish and knows the characteristics of Latin peoples, has been able to re-establish confidence in many circles, but his task is by no means completed. There is a strong anti-American sentiment in Mexico which is being augmented by the pro-German propaganda. One morning I was told in several places that the Allies were about to be defeated and that Russia was to join with Austria-Hungary and Japan against England, France and the United States. Every time I passed the big German book store in Mexico City, where German photographs and maps are displayed, the sidewalks were crowded with people. In one window hung the same map of Europe which one sees in many shop windows in Berlin—a gigantic chart showing the position of the armies of Germany in the occupied territories, a "proof" that Germany is winning the war.
​The question of what attitude Mexico should ultimately take regarding the world war is very closely connected with the Mexican puzzle to-day. This problem is:
"How can Mexico obtain money?"
The first conclusion which the American experts reached after two months' examination of the Mexican records was that the nation was bankrupt. One of the officials began the dictation of a report beginning with a statement to that effect. Then when he tried to establish his conclusion by facts, the facts failed him. So he finally concluded that if the government is reorganised along scientific business lines it will be able to weather the present storm without financial aid from a foreign country. In coming to this conclusion, however, this authority was compelled to disregard the foreign debt and foreign obligations of the Mexican Government.
The records of the present government show that President Carranza has asked Congress to authorize three loans. The first, amounting to 150,000,000 pesos, is to be used to pay debts. The second loan which Mr. Carranza seeks amounts to 50,000,000 pesos to be used to rebuild and reconstruct the railroads. The third loan, for which the authority of the National Congress is asked, is for 100,000,000 pesos to establish a "bank of issue."
Something of the financial crisis facing Mexico may be gathered from these brief figures: ​In May, 1916, the estimated revenue of the Constitutionalist Government was four million pesos, about two million dollars a month. Fourteen months later the estimated revenue was 107,000,000 pesos annually, but the budget called for an expenditure of 80,000,000 pesos more than the income. The Carranza Government is operating on a cash basis now and is spending more than it is making, although government officials are being paid only seventy-five per cent of their salaries in cash. This deficit does not take into consideration any of the foreign obligations.
It is the contention of the American experts and of certain government officials that through governmental economies this deficit can be cut down so that it will not be "dangerous" and new bonds can be issued to replace bonds held in foreign countries.
The other view of the financial situation, which I found the predominant one, is that the present government cannot continue without the aid of foreign capital. This would seem to be the belief of President Carranza, too, inasmuch as he asked the federal Congress for authority to raise 300,000,000 pesos, that is, $150,000,000.
On July 7th, 1917, El Universal printed the following message which President Carranza sent to the Chamber of Deputies:
"To the Secretaries of the Chamber of Deputies: for its Constitutional effect: I beg to send ​you with this message a bill authorising the Executive to procure in Mexico, or outside, up to 100,000,000 pesos, gold, to found the sole bank of issue authorised by the political constitution of the Republic promulgated in Querétaro February 5th, 1917.
"Surely the Deputies will be persuaded that one of the principal causes why agricultural, industrial and commercial development of the country have not proceeded with the quickness with which the re-establishment of order might lead one to suppose, is the almost complete disappearance of credit, and the insufficiency of circulating medium which makes difficult the reasonable operation of the economic activities of the Nation.
"It is for this reason that the Executive believes it of imperious necessity to proceed immediately to organise the sole bank of issue provided in the political constitution of the Republic.
"the banking system
"The banking systems established by governments in the past, although in a way, long ago, they fulfilled the necessities of the moment, were established on a basis of absolute privilege in favour of capitalists without compensation for national interests and without foresight. The issues of the banks never had reasonable and adequate guarantees; some of them enjoyed express ​privileges in regard to the amount of their issue; all enjoyed the unjust privilege of exemption from taxes and the odious power to apply special primitive laws for their own benefit. The concessions for the establishment of banks of issue were granted without providing a logical and proper co-operation between them, but giving rise to an unreasonable competition ruinous for themselves and for the Republic. The intervention which the Government used to express in institutions of credit never was more than merely nominal, and among many other cases can be cited this: The banks of issue figured their own shares of stock among the securities that could be realised upon. As a consequence of their unreasonable management and of their bad organisation, the complete failure of the old system of institutions of credit could be foreseen when the international crisis began in 1913. In effect the first manifestations of revolution actually were enough to cause the banks to ask the government of the usurper for the privilege to suspend payments which was conceded to them, in exchange for the privilege the banks of issue made a large loan to the usurper.
"the economic situation of the country
"When the economic situation of the country became grave and before the Constitutionalist Government made any decrees at all on institutions of credit, the situation was getting more ​difficult every day until these institutions ceased to properly operate and soon became merely speculators in the paper money issued by the Revolutionary Government. At the time the bills had already suffered considerable depreciation which fluctuated between 60 and 90 per cent of discount on nominal value.
"When the duties of the campaign permitted the Government of the Revolution to fix its attention on the financial organisation of the Republic a preliminary decree was issued fixing a period within which the banks of issue must regulate their fiduciary circulation in accordance with the general principles of the law of institutions of credit. As this decree was issued in Vera Cruz, where the necessary estimates for knowing the economic situation of each one of the banks in detail was lacking, it was believed at the beginning that many of them would be in condition to continue their operations on complying with the general banking law.
"When the Department of Finance came into possession of the balance sheets of the majority of the banks of issue it was seen that although their reserves were in conformity with laws in question in relation to their fiduciary circulation, the banks were not in condition to continue operation because a great part of their assets which went into large nominal figures in fact represented an insignificant real value.
"As, on the other hand, the majority of the ​banks of issue had assumed an attitude of open hostility against the Government of the Revolution contributing to the depreciation of the government paper money and were conducting themselves in a manner against public interests through speculations outside of their sphere of action, the First Chief believed proper to make more radical decrees to put an end at once to the defective banking systems then expiring and to leave the field open to a better organisation.
"Therefore on the 15th of September last year a decree was issued repealing all laws in force until that date on institutions of credit and putting the banks of issue under the direction of Boards of Receivers which have been operating them up to date.
"the sole bank of issue
The Constituent Congress which met in Querétaro was perfectly aware of the need of substituting the defective banking system by another more reasonable and in consonance with the economic needs of the nation; with the result that the new Magna Charta provided for the establishment of a sole bank of issue.
"The Department of Finance has been studying since then the bill which in due time the Executive will submit to Congress on the organisation of the sole bank of issue; but as arrangements to obtain new capital must consume much time, the ​Executive believes it proper to use the time to delay as little as may be the organisation of the new institution of credit.
"perfectly definite bases
"Elemental prudence dictates that the new bank of issue should begin its operation on perfectly safe bases because it is the only manner in which confidence and credit may return in healthy and vigorous form to renew the economic life of the Republic.
"If the Executive under my charge does not immediately send to Congress concrete bases to obtain the initial capital of the new bank, but asks authorisation to negotiate with capitalists, it is due to the fact that in the present financial condition throughout the world, it is not easy to foresee the difficulties the Government may encounter to induce capitalists to make an investment which, although safe, will probably meet with a barrier of prejudice and lack of confidence.
"definite plan of organization
"It is therefore necessary for the Executive to determine in advance the possibility of obtaining necessary funds for its establishment before submitting to the Congress a definite plan for the organisation of the new bank. To carry the temporary arrangements through the Executive needs ​complete liberty of action, for even the determination of the opinion of capitalists and preliminary arrangements may cause the early organising of the new institution of credit to be changed. In any case, the Executive will have the honour to submit to the consideration of Congress before carrying into effect the arrangements made with capitalists together with the general law which fixes the bases for the bank of issue. Mexico, July 6th, 1917."
Commenting upon this message El Universal said, editorially:
"This was the only newspaper which upheld the urgent propriety of creating a large stock of circulating money for business and the commercial and agricultural development of the country. The foregoing message confirms the labour of El Universal, in all its parts. Furthermore, and this is the opportune time to say so, the sum asked for by the government appears small to us, for we believe it very difficult to obtain any money from foreign countries without the previous payment of the coupons of our debt, and if this were necessary, the amount destined for the sole bank of issue would come out much less, and we believe that if any foreign loan must be agreed upon, we should strive resolutely to procure up to the sum necessary to improve our credit in foreign countries and to solve economic difficulties in the interior." ​In case the Mexican Congress authorises Mr. Carranza to raise this amount there are but two sources from which it might come. Either American bankers will take the bonds and sell them or the United States Government will loan money to the southern neighbour.
New York bankers will not loan money to Mexico as long as conditions are unsettled and as long as there is danger to American property and American citizens in Mexico. These bankers will not subscribe to a loan as long as they hold old Mexican bonds which have had no interest paid on them in six years and which are selling for fifteen dollars each in the United States to-day. This has been candidly explained to the Mexican authorities.
On the other hand, the United States Government cannot loan money to Mexico because this is forbidden by the constitution unless Congress passes a special act, and it is certain that neither the administration will recommend such a loan, nor that Congress would pass such an act. By the terms of the act which enables the United States to loan money to foreign governments during the war it is particularly stipulated that funds can be loaned only to Allies. This, too, has been explained to the Mexican Government.
The easiest way and perhaps the most successful way out of the present financial difficulties in Mexico would be for that country to break off diplomatic relations with Germany and join the ​international league of nations, which will follow this war, to establish the peace of the world.
Should the Carranza Government fall there are on the horizon to-day no leaders, nor is there a group of men, who could take hold and do as well as the Carranza Government is doing. There are rebel leaders in various parts of the country from Villa in the north to Zapata in the mountains near Mexico City and General Pelaez in the oilfields outside of Tampico. Once this government falls, terror will reign again in all parts of the country, and as the United States and the Allies are almost wholly dependent upon Mexico for oil and various minerals, a state of anarchy in Mexico which would interfere with the Allies' supply of these valuable war necessities could not be permitted. If the revolution should break out again the only solution would be American intervention, which would be not only costly to us but would divert to a certain degree the energy of the United States which it is so necessary to concentrate upon the war in Europe.
No one knows this better than the Germans in Mexico, and although they are "playing" the present government they are also preparing for the time when there may be trouble in Mexico injurious to the United States. At present they want to keep Mexico neutral.
The Carranza Government has been told officially that so far as the United States Government is concerned it is not in America's interest for ​Mexico to declare herself an Ally, but entirely in the interests of Mexico. Whether President Carranza and his government will realise this, and whether, even if they do, they will be able to carry through a break with Berlin, are unanswerable questions. One must await developments.
"Will Mexico be a friend or a foe of the United States?" That is to-day an insoluble puzzle.
Note: In Appendix A will be found the bills presented to the Chamber of Deputies regarding the remedies for the financial crisis as they were printed in El Universal.