Introduction
The Great Depression marked the beginning of Argentina’s “infamous decade,” during which the country’s experiment with democracy ended, with electoral fraud once again becoming widespread. For most historians, this marked a turning point in Argentina’s history, as the “true republic” became the “impossible republic.”Footnote 1 Economic historians have, however, often had a more positive view. To the extent that there is a consensus, it is that the effects of falling international commodity prices and reduced capital inflows were ameliorated by the economic policies pursued after the coup d’état of September 1930. Those policies included, crucially, the decision not to default on or renegotiate the external public debt. The result, it is argued, was to make the effects of the international crisis less severe in Argentina than elsewhere.Footnote 2
This article uses a sectoral analysis of corporate profitability to reassess the economic policy pursued during the administrations of José Félix Uriburu and his successor, Agustín P. Justo.Footnote 3 In the business history literature, studies of profitability generally focus on business performance,Footnote 4 whereas here it is used to show which sectors gained (or lost out) from economic policy.Footnote 5 To do so, the article exploits a previously underutilized source. During the years 1927–1934, the Banco de la Nación’s Office of Economic Research compiled statistics on corporate profitability and sporadically published them in its Revista Económica. Footnote 6 These reports cover hundreds of companies registered in Buenos Aires and are grouped into the following categories: agriculture, industry, transportation, banking, insurance, and commerce.Footnote 7 They were compiled as three distinct samples, which are summarized in Table 1. The large British railway companies were the main omission from the three samples because they were not registered in Argentina, so data on eight British joint stock railway companies have been added here.Footnote 8
Table 1 The Revista Económica’s Samples of Corporate Profitability, 1927–1934
a The number of corporations varies from year to year.
Sources: Compiled from Revista Económica, vol. 5, no. 6, July, 1932, 105, 107; vol. 6, no. 6, August, 1933, 99, 101; and vol. 7, nos. 1-4, January–April, 1934, 239, 241.
The sectoral analysis of corporate profitability suggests that economic policy had the effect of prioritizing the banking sector at the expense of other sectors. Although agriculture had a relatively stable output, the profitability of agricultural corporations collapsed, primarily due to falling export prices but also thanks to the government’s determination not to default on or renegotiate the external public debt. This determination made the government limit devaluation through the imposition of exchange controls in order to prevent debt service from becoming unsustainable. Reduced rural incomes then resulted in lower demand for the goods and services of other sectors, especially commerce, transportation, and insurance, all of which experienced sharp reductions in profitability. The industrial sector did better, by contrast, as many traditional manufacturing activities remained profitable, while there were also new opportunities for import substitution thanks to the devaluation that did take place, as well as some increases in tariffs. Banking was, however, the sector least affected by the crisis, primarily due to the government’s decision not to default, which benefited the banks both because it led to a rediscounting policy that effectively subsidized them and because further government borrowing kept commercial interest rates high. This economic policy had less beneficial effects on other sectors, especially once the imposition of exchange controls limited devaluation.
The article is divided into three main sections. The first discusses problems with the statistics that inform the positive view of economic policy during Argentina’s Great Depression, specifically estimates of gross domestic product (GDP) and the official wholesale price index (WPI). The second section analyzes the different levels of sectoral profitability. Finally, the conclusion argues that prioritizing the banking sector made the effects of the international crisis more severe in Argentina than if the government had defaulted on or renegotiated the external public debt, as was done in the rest of Latin America. Had the Argentine government done so, it would have been able to permit further devaluation, which comparative studies have found was associated with more rapid recovery from the Great Depression.Footnote 9
Output and Prices
Two pieces of statistical evidence have been particularly important for the positive view of economic policy during Argentina’s Great Depression: GDP estimates and the official WPI. The most commonly used GDP estimates show a fairly moderate fall of 14 percent from 1929 to 1932, with recovery beginning in 1933 and the pre-crisis level being passed by 1935.Footnote 10 Compared to some of the worst-hit countries, this downturn was mild and the recovery rapid. The official WPI, moreover, indicates that Argentina experienced relatively little deflation, leading economic historians to point toward monetary policy to explain why GDP recovered so rapidly particularly the decision for the Conversion Office to establish a rediscounting facility to provide liquidity to banks in April 1931, which they believe led to a fall in real interest rates.Footnote 11
The commonly used statistics of both output and prices are, however, problematic. The most widely used GDP estimates were produced by the Economic Commission for Latin America in the late 1940s and have long been known to be subject to considerable margins of error. When alternative estimates of industrial output have been made, for instance, they have shown significant inconsistencies between them.Footnote 12 What is more, while agricultural output is the most reliable part of the GDP estimates (thanks to the abundance of government statistics on land use, yields, and prices), its evolution is misleading when it comes to the Great Depression: Even though the physical volume of agricultural output remained fairly constant, the current value and purchasing power of that output collapsed due to falling prices. The official WPI, meanwhile, is misleading because it systematically underweights those falling agricultural prices. It was calculated as a simple unweighted average of the prices of 105 goods, which meant, for instance, that sardines were given the same weight as wheat, which was absurd for a country with Argentina’s productive structure. Unfortunately, there has been no attempt to reestimate the WPI, and it has been routinely used in the existing literature and reproduced in compilations of Argentina’s historical statistics. Nonetheless, although the underlying price series were never published and appear to be unavailable in the archives, it is still possible to get a more accurate impression of the evolution of wholesale prices during the Great Depression. An article published in the Revista Económica reproduced the prices of the 105 goods for November 1933 and February 1934, all referenced so that 1926 equaled 100. When those prices are weighted according to value of production, they suggest that by around the end of 1933, wholesale prices had fallen roughly 30 percent relative to 1926, which was a level of deflation similar to that in countries in North America and Western Europe.Footnote 13 This impression is reinforced by Argentina’s consumer price index, which showed an evolution similar to that of other countries.Footnote 14 There are, then, considerable problems with the estimates of both output and prices used in the existing literature. For this reason, it is worth considering alternative indicators.
Corporate Profitability
The statistics of corporate profitability published in the Revista Económica suggest that Argentina was severely affected by the Great Depression.Footnote 15 As shown in Figure 1, the average profit rate was around 7 percent during 1927–1929, but then fell rapidly, becoming negative in 1933 before recovering somewhat the following year, although it remained well below the pre-crisis level, suggesting a profound and long-lasting crisis.Footnote 16 The crisis did, however, impact some sectors more than others, as shown in Table 2: Commerce, insurance, and agriculture were worst hit, followed by transportation, industry, and finally banking, which was relatively unscathed. To understand why, it is necessary to analyze the profitability data sector by sector.
Figure 1 Corporate Profitability 1927–1934.
Note: A is a variable sample that ranges from 876 corporations in 1927 to 1,211 in 1933; B is a fixed sample of 930 corporations; and C is a fixed sample of 644 corporations.
Source: Compiled from the samples summarized in Table 1; and the annual reports of eight British railway companies, as reproduced in DIA Agency, Inc., Materials for the History.
Table 2 Sectoral Corporate Profitability, 1927–1934
Note: The three samples were averaged in overlapping years to arrive at annual figures.
Sources: See Figure 1.
Agriculture
The crisis severely affected the agricultural sector: The average profit rate fell from around 7 percent in 1928–1929 to negative figures in 1932–1933, before recovering slightly in 1934.Footnote 17 The root cause was falling international agricultural prices, although their impact was compounded by the economic policies pursued by the Uriburu and Justo administrations. In 1929 the gold standard had been abandoned, with the peso allowed to float freely by the administration of Hipólito Yrigoyen. The devaluation that followed favored agriculture, yet it was brought to an end by the Uriburu administration. In October 1931, exchange controls were introduced, and in December the peso was pegged to the dollar and the franc in order to prevent the servicing of bonds denominated in foreign currencies from becoming unaffordable. Then, in November 1933, the Justo administration established a multiple exchange rate, which gave the agricultural sector a rate below that paid by importers and the free rate used for financial transactions. Through this system, the government bought foreign exchange from exporters at a low rate and then sold it on to importers at a higher rate, with the margin between the two acting as a de facto tax.Footnote 18 The finance minister responsible for implementing the multiple exchange rate, Federico Pinedo, recognized years later that it implied “a heavy price at the cost of agricultural producers.”Footnote 19 Hence, all other things being equal, agricultural prices would have been a third higher in 1934 had exporters received the free exchange rate.Footnote 20
Measures belatedly taken by the Justo administration to support agriculture were insufficient to compensate for lower prices. In 1933 the Roca-Runciman Pact guaranteed beef producers access to the British market, a mortgage moratorium gave landowners debt relief, an Agrarian Credit department was established within the Banco de la Nación to provide tenants with funds to cover their rent, and new regulatory boards offered minimum prices to grain and dairy producers.Footnote 21 The measures were, however, relatively limited: By the end of 1934, the grain board, for example, had provided m$n8.7 million of support and the milk board m$n2 million, whereas the government had made m$n84 million from the margin between the export and import exchange rates,Footnote 22 so the support provided was minimal compared to the de facto exchange rate tax.
There was also little progress toward the structural reforms that would have improved agricultural producers’ position vis-à-vis the large corporations that transported and exported their goods. No progress was made in constructing a network of grain elevators, which would have allowed farmers to store their crops until prices rose.Footnote 23 Partly as a result, when the cost of producing and transporting arable crops exceeded prices at the port during 1930–1933, the farmers were made to absorb the losses.Footnote 24 The railway companies only marginally lowered their freight rates, and the grain-trading companies, through their agents in the countryside, used their position in the market to maintain their profit margins. Consequently, there was a substantial fall in the proportion of the wholesale price received by the farmer.Footnote 25 Similarly, the Roca-Runciman Pact reinforced the status quo, since it did not affect the meatpackers’ buying power over the ranchers, which had seen the margin between Argentine and British beef prices increase substantially during the crisis.Footnote 26 This allowed meatpackers to maintain average profit rates of over 10 percent, even as the ranchers’ profits collapsed.Footnote 27 Agricultural producers faced, moreover, the increased financial burden of servicing their debts due to high interest rates.
Industry
Industry’s performance during the Great Depression was more mixed, reflecting the sector’s diversity. The Revista Económica treated it as a broad category that included not only manufacturing but also forestry, mining, power generation, and construction. Care must therefore be taken when interpreting the aggregate figures, which show a reduction in the profit rate from 7–8 percent during 1927–1929 to 2 percent in 1933, with some recovery in 1934. There was, then, a pronounced fall in the profit rate, although not to the same extent as in the overall profit rate shown in Figure 1. More disaggregated data published by the Revista Económica for 1927–1933 show that some industrial activities were affected more than others.Footnote 28 For this reason, it is necessary to look at the winners and losers within the sector.
The effects of the crisis on food and drink producers, the most traditional and largest part of Argentina’s manufacturing sector, was mixed. The meatpackers, which were among the largest industrial corporations, continued to enjoy high profit rates, even as their suppliers, the ranchers, struggled to break even. As noted above, this reflected the meatpackers’ buying power, which allowed them to protect their profitability by increasing the margin between the prices paid to ranchers and those they charged for the meat, making them the main beneficiaries of the government’s determination to retain access to the British market through the Roca-Runciman Pact. The flour mills also remained highly profitable during the crisis, as they were able to prevent the price they charged for their flour from falling to the same extent as the price they paid for wheat.Footnote 29 Such businesses were not affected by reduced demand, as they produced basic necessities that people continued to consume at levels similar to before.Footnote 30 Producers of foodstuffs that were less essential, by contrast, did worse. Dairy producers, sweet and biscuit manufacturers, and vineyards all saw their profits reduced sharply, often recording losses by 1933.
More gravely affected were the industries connected to construction, which saw a sharp fall in activity. The value of building permits granted for the Federal Capital fell by 64 percent from 1929 to 1933,Footnote 31 while the federal government’s expenditure on public works fell by 61 percent.Footnote 32 The resulting contraction in construction gravely impacted the profitability of numerous industries, both within manufacturing (metalworking, building materials, glass, and furniture) as well as within the Revista Económica’s broader category of industry, which included both companies making materials for construction (mining and forestry) and the building contractors themselves. The corporations in these industries recorded losses because construction is the activity that is normally most affected by the ups and downs of the business cycle.
There were, by contrast, some new manufacturing activities that prospered during the crisis due to the increased possibilities for import substitution. Much as devaluation and tariff increases after the Baring crisis had led to the rapid growth of many import-substituting industries in the 1890s,Footnote 33 the 1930s would see another spurt of import-substituting industrialization. Companies whose products competed with imports were favored by the devaluation of the peso from the abandonment of the gold standard in 1929 to the introduction of exchange controls in late 1931, as well as some increases in tariffs during 1931–1932.Footnote 34 Branches of industry that processed locally produced agricultural products were particularly favored, given the falling prices of their raw materials. Textiles, which processed local wool and cotton, expanded rapidly after 1929, having stagnated for much of the 1920s.Footnote 35 Petroleum production, meanwhile, continued its expansion from the previous decade, substantially displacing imported petroleum from the domestic market and continuing to replace coal, all of it imported, as an energy source.Footnote 36 This expansion was reflected in the high profit rate for both textile and petroleum corporations. Chemical manufacturers also enjoyed high profit rates, although without expanding their output.Footnote 37
Transportation
The fall in transportation’s profitability primarily reflected the performance of the large British railway companies that have been added to the Revista Económica’s samples. The big four railway companies (the Southern, Central, Western, and the Buenos Ayres & Pacific) operated in the Pampean region, while some smaller railway companies also operated more regional lines. The Revista Económica’s samples also included tram companies, which provided urban and suburban passenger transportation, as well as some merchant marine and port companies. Given the railway companies’ large size, however, the reduced profitability of the transportation sector as a whole was primarily due to their falling profit rates. The railways’ profits were reduced by the crisis because lower incomes meant there were fewer passengers and goods to be transported: The ton-kilometers of goods carried fell by 27 percent from 1929 to 1933, while passenger kilometers fell by 19 percent,Footnote 38 driving down transportation’s profit rate from around 5 percent in 1929 to negative figures from 1932 onward. The railway companies’ performance would have been worse, however, had it not been for farmers’ continued dependence upon them. Farmers maintained similar levels of production throughout the crisis, so similar volumes of agricultural produce had to be transported, while they had little success in lobbying the government to impose tariff reductions on the railway companies.Footnote 39 Average tariffs on goods fell by just 7 percent from 1929 to 1933,Footnote 40 whereas wholesale cereal and oilseed prices fell by around 40 percent over the same period.Footnote 41
Unlike that of other sectors, transportation’s profitability did not pick up once recovery began in 1934, mainly due to the steadily increasing competition of automobiles as a means of transportation.Footnote 42 Short-distance transportation was first to be affected, most notably in Buenos Aires, where the trams began to sustain substantial losses due to competition with the rapidly proliferating bus companies.Footnote 43 Lorries also transported ever more goods. A study in Santa Fe found that in 1934 8 percent of goods arrived at the province’s port in lorries, but they already had a virtual monopoly for journeys under 50 kilometers.Footnote 44 Motor vehicles’ flexibility gave them an advantage over short distances: Multiple buses could run the same line in cities, while lorries could collect produce from the farm gate and take it directly to the port. As small businesses, moreover, the bus companies and truckers did not suffer from the costs that came from the railways’ organized labor force, which was able to resist the wage reductions that afflicted most other sectors. Transportation’s profitability was thus affected by both the cyclical impact of the Great Depression and the secular effect of competition with a disruptive new technology.
Commerce
Commerce was worst affected by the crisis, as profitability fell from around 10 percent before 1929 to negative values during 1932–1933, with some recovery in 1934. The fall was not, however, uniform across the sector. The Revista Económica used “commerce” as a broad category that included much of what would now be considered services. It included strictly commercial companies, such as grain exporters and companies involved in importing, warehousing, wholesaling, and retailing,Footnote 45 but also some finance and real estate companies. The more disaggregated profit rates published in the Revista Económica suggest that the crisis most affected more strictly commercial companies, whereas finance and real estate companies continued to have healthy profit rates—indeed, their profitability appears to have been little affected by the Great Depression.Footnote 46
Strictly commercial activities were severely impacted by falling consumption. Lower wages reduced the purchasing power of workers, while low returns on capital also limited wealthy people’s consumption of luxury goods. Firms linked to importing were particularly affected because the devaluation of the peso raised the prices of imported goods. Department stores in the Federal Capital saw their sales reduced by almost 40 percent from 1929 to 1933,Footnote 47 leading to substantial losses. The importation of automobiles all but ceased: The number of vehicles imported dropped from 76,561 in 1929 to just 6,846 in 1933.Footnote 48 Companies involved in this previously lucrative activity of importing automobiles therefore saw their profitability collapse. The situation of commerce was sufficiently dire that many companies revolted against the government’s attempts to raise taxes. In 1931, a new transactions tax was introduced that placed a 2 percent tax on sales at every point in the supply chain, meaning that the same good was taxed as many times as it was sold. Some companies paid the tax, which further ate into their profits, while others, led by the National Congress of Commercial Institutions, protested with a tax strike and other acts of civil disobedience. The tax strike lasted for more than a year, until the government backed down, replacing the transactions tax with another that only affected some exports and industrial products. It also granted a fiscal amnesty to merchants who had previously refused to pay the transactions tax.Footnote 49 Given the generally low level of profitability, those that had paid it often had to sacrifice part of their capital to do so.Footnote 50
Finance and real estate companies, on the other hand, were hardly affected by the crisis. Even though the value of real estate transactions fell (the value of properties sold in the Federal Capital dropped by 40 percent from 1929 to 1933),Footnote 51 firms were able to remain profitable thanks to high interest rates on the loans they made. The Argentine Building Society, for example, used its own funds to authorize credits to (and build houses for) the porteño middle class. During 1929–1933, it maintained high profit rates of around 9 percent, which only fell to 6 percent in 1934, once interest rates were lower.Footnote 52 The case of Buenos Aires Building was similar, with the main difference being that this company financed its activities through the emission of bonds. In its 1930/1931 annual report, it stated that “even in the difficult years” its profits were at a “record” level.Footnote 53
Insurance
The profitability of insurance fell from 9–10 percent during 1927–1929 to something more than 5 percent between 1930 and 1931, and was reduced further in 1932–1933, although there is some disagreement between the Revista Económica’s samples. Reduced profitability primarily resulted from the 25 percent reduction in the volume of premiums from 1929 to 1933.Footnote 54 Insurance in the countryside was particularly affected because the premiums were based on the estimated value of the harvest, which was severely reduced by the lower agricultural prices: The value of policies against hail damage fell by almost 60 percent from 1929 to 1933.Footnote 55 Nonetheless, the effects of lower premiums would have been even more severe were it not for the high interest rates, which generated returns for the insurance companies because of the public bonds they held as reserves as well as the loans they made with their own funds, effectively using life insurance policies as guarantees. Hence, the only activity that grew significantly during the first years of the crisis was life insurance, which included the profits from loans to third parties.Footnote 56 In this, then, insurance companies appear to have benefitted from high interest rates, much like the finance and real estate companies included in commerce.
Banking
Banks remained relatively profitable throughout the Great Depression, with the profit rate remaining at around 8 percent during 1930, then falling slightly in 1931, and further to 3 percent in 1933. This reflected the performance of the medium-sized private Argentine banks, as the large public banks were largely excluded from the Revista Económica’s samples.Footnote 57 The private banks benefited from economic policy during the crisis, especially the decision not to default on or renegotiate the external public debt.Footnote 58 To continue servicing the debt, the government obliged the Banco de la Nación to purchase treasury bills with its large deposits from the public. In doing so, the Banco de la Nación’s finances were undermined, pushing it toward crisis. In response, Raúl Prebisch, then undersecretary of finance, persuaded the government to use an old rediscounting law that allowed the private banks’ nonperforming loans that had been rediscounted by the Banco de la Nación to be rediscounted in turn by the Conversion Office in exchange for cash. Although in theory the delinquent loans still belonged to the entities from which they originated, they entered a kind of limbo in which it was assumed that their repayment would not be asked for at short notice. At the same time, the private banks made loans to the government, which permitted it to get around a clause in the Banco de la Nación’s statutes that prevented it from loaning more than 25 percent of its capital to the government. Through this system, the private banks could supplement the funds borrowed directly from the Banco de la Nación. For the private banks, this was highly profitable because the interest rate paid to the Banco de la Nación was less—probably around half—the interest rate paid by the government. The government’s demand for funds also had the effect of pushing up interest rates charged to the private sector: The rate applied to commercial loans was around 7 percent during 1929–1932, only falling slightly during 1933–1934. In this way, the private banks were not only able to transfer their nonperforming loans to the government, but they also continued to receive high interest rates for loans to both the public and private sectors. As a result, the private banks declared substantial profits (and paid dividends) throughout the first half of the decade.Footnote 59 This privileged position was reflected on the Buenos Aires Stock Exchange, where bank shares remained relatively buoyant as other shares fell.Footnote 60 The question of why economic policy appears to have prioritized the banking sector remains an open question that is beyond the scope of this paper.Footnote 61
Conclusions
An analysis of corporate profitability thus leads to a reevaluation of economic policy during Argentina’s Great Depression. Looking primarily at statistics of output and prices, much of the existing literature has found that Argentina was only mildly affected by the international crisis and quickly recovered from it. The statistics of corporate profitability for 1927–1934, by contrast, suggest a less positive assessment, since the profit rate fell dramatically and remained low. The sectoral profit rates suggest, moreover, that it would have been possible for Argentina to have been less negatively affected by the Great Depression if economic policy had not prioritized the banking sector. Maintaining debt service meant that the government had to overvalue the peso and continue borrowing, which pushed up interest rates and crowded out investment from the private sector.
What would have happened if the government had defaulted on the external public debt earlier is the most interesting counterfactual of Argentina’s Great Depression, primarily because a different exchange rate policy could have been pursued. If the government had defaulted, it would not have needed to revalue the peso in 1931 to reduce the cost of debt service. Had the peso devalued more, it would have increased incomes in the agricultural sector by raising the prices received for agricultural exports. The prices of imported manufactured goods would have also gone up, thereby increasing opportunities for import substitution in the industrial sector. These gains would have outweighed the reduced incomes in the banking sector.Footnote 62 It is possible to imagine, then, a counterfactual in which the government defaulted on or renegotiated its debt, thereby allowing it to further devalue the peso, which would have improved the profitability of both agriculture and industry, leading to greater investment and growth. Such a counterfactual is supported by the international evidence, which shows that the countries that devalued their currencies the most during the Great Depression tended to be the least affected by it.Footnote 63
Default or renegotiation of the external public debt would have also made more funds available to finance growth. As it was, the government took on short-term loans from the private banks in order to maintain debt service,Footnote 64 which pushed up commercial interest rates to almost 8 percent in 1932. In “real” terms, moreover, interest rates were much higher, as Argentina underwent significant deflation during the early 1930s—a fact not recognized in the existing literature due to an official WPI that significantly underestimates the degree to which prices fell.Footnote 65 Raising funds through borrowing was therefore prohibitively expensive for businesses. On top of this, the government’s refusal to default also crowded out equity investment in the private sector, since investors could receive a higher rate of return from government bonds. In 1933, for instance, the 6 percent bonds of the so-called Patriotic Loan, which had been issued the previous year, sold at a 15 percent discount, giving a yield of 7 percent.Footnote 66 It therefore made little sense to invest in an industrial sector with a 2 percent profit rate. As one of the country’s main business associations put it:
All the businessmen of production, commerce, and industry attempt to obtain, as a minimum, a profitability equal to public bonds, given the risks that exist and that are not found when investing in bonds. If they do not obtain this return, they become disheartened, as is natural, and try to liquidate their businesses and, if they can, put their capital into public bonds. This process, on becoming generalized, has caused a worsening of the overall situation.… The profitability that today is obtained from production is extremely low, far below the official [interest] rate.Footnote 67
The analysis of corporate profitability in this way leads to a less positive assessment of economic policy during Argentina’s Great Depression. It has been argued here that the economic policy pursued had the effect of prioritizing the banking sector. Crucially, the government chose not to default on or renegotiate its external debts, becoming the only Latin American country not to do so. The banking sector benefited from these policies because the government used the rediscounting facility to provide the private banks with liquidity so that they could then continue to lend to the government, while continued government borrowing allowed the banks to keep interest rates high for private enterprises. For other sectors, by contrast, economic policy was less favorable. Most notably, further devaluation could have ameliorated the effect of international prices on agricultural incomes while increasing opportunities for import substitution in industry. More funds would have also been freed up for investment in the private sector because interest rates would have been lower and the crowding out effect of public borrowing would have been reduced. Had a different economic policy been pursued, it is therefore likely that Argentina would have been less severely affected by the Great Depression.
Appendix A: Corporate Profit Rates
Table A1 includes the capital and profit data for the samples published by Revista Económica, as well as the eight British railway companies added for this paper. To clarify, Revista Económica calculated capital as the book value of share equity issued plus reserves plus the balance carried forward from the previous year. Profits were calculated as profits after interest, depreciation, and amortization (and included dividend payments) minus the balance carried forward from the previous year. The British railways’ capital and profits were calculated in the same way from the annual accounts data. Table A2 contains the profit rates for the various subsectors of commerce and industry in Sample A. Unfortunately, when reproducing these profits rates, the Revista Económica did not publish the underlying series for capital and profits, except for 1932–1933.
Table A1 Corporate Capital and Profits, 1927–1934
Note: All figures are in 1,000 pesos, except for the profit rate, which is profits as a percentage of capital.
Source: See Figure 1.
Table A2 Profits Rates for Commerce and Industry, 1927–1933
Source: Compiled from Revista Económica, vol. 5, no. 6, July, 1932, 106; vol. 7, nos. 9-12, 1934, 241.
Appendix B: Real Interest Rates
Real interest rates have featured prominently in some of the literature on Argentina’s Great Depression,Footnote 68 yet their measurement is far from straightforward. Nominal interest rates were high in Argentina, as can be seen in Table B1. The argument that Argentina’s government successfully reduced real interest rates rests instead on a WPI that appears to show Argentina suffering from relatively little deflation during the Great Depression. Thus, the official index, which has been reproduced in numerous statistical compendia,Footnote 69 shows Argentina’s wholesale prices falling by 11 percent from 1929 to 1933, whereas the U.S. WPI, for example, fell by 31 percent.Footnote 70 Less deflation thus appears to compensate for higher nominal interest rates, resulting in broadly similar real interest rates in Argentina as in the other countries. That conclusion appears to be based, however, on an unreliable WPI that understates the extent of deflation during Argentina’s Great Depression.
Table B1 International Interest Rates, 1927–1933
Source: League of Nations, Statistical Year-book, 1934/1935, 243, Table 118; 1937/1938, 252–253, Table 129.
The official WPI is of poor quality. It was calculated by Prebisch’s team at the Banco de la Nación as the unweighted average of the prices of 105 goods, referenced so that 1926 equaled 100. Two subindices were also calculated as the unweighted average of 23 agricultural goods and 82 non-agricultural goods.Footnote 71 Two problems with this methodology can be noted. First, most of the “agricultural goods” should actually be classified as “non-agricultural” because flour, chilled and frozen meat, hides, butter, and the like were, according to any standard industrial classification,Footnote 72 products of Argentina’s manufacturing sector, even if they were processed agricultural goods. Second, the lack of weighting makes the indices unrepresentative of Argentina’s productive structure, giving, for instance, sardines the same weight as wheat, even though Argentines produced little of the former but considerable quantities of the latter.
Fortunately, it is possible to arrive at a more accurate indication of the degree of deflation during Argentina’s Great Depression. As yet, it has not been possible to locate the complete price series that underlie the official price index. In an article in the Revista Económica, however, Prebisch reproduced the prices of the 105 goods for November 1933 and February 1934, all referenced so that 1926 equaled 100. Those prices can be used to calculate a new weighted WPI, as shown in Table B2, where it is compared to the official index. The weights in the new index are calculated from the gross value of production in 1935, which has been estimated from the industrial census of that year and statistics of trade, physical output, and prices. The result clearly shows that the degree of deflation during this period was far greater than has previously been supposed: Around the end of 1933, wholesale prices had fallen roughly 30 percent relative to 1926.Footnote 73 Table B3 demonstrates that such a level of deflation was similar to that in countries in Europe and North America. Less deflation cannot, therefore, have compensated for higher nominal interest rates in Argentina, so real interest rates must have been extraordinarily high.
Table B2 Wholesale Price Indices, 1926–1934
Sources: Official WPI: Prebisch, “Momento presente,” 228–229. New WPI: Prices: ibid., 232–235; Revista Económica, vol. 7, nos. 1-4, January–April, 1934, 43; vol. 7, nos. 9-12, 1934, 247. Weights: República Argentina, Censo industrial de 1935, 44–53, Cuadro 3; Comité Nacional de Geografía, Anuario geográfico; Vázquez Presedo, Estadísticas históricas, 194–221; and Bolsa de Cereales de Buenos Aires, Numero Estadístico, 1986, passim.
Table B3 International Wholesale Price Indices, 1926–34
Sources: League of Nations, Statistical Year-book, 1934/1935, 228, Table 112.
