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A Curious Capital Flow: Canadian Investment in Mexico, 1902–1910

Published online by Cambridge University Press:  11 June 2012

Christopher Armstrong  and
H.V. Nelles
Christopher Armstrong
Affiliation:
Christopher Armstrong is associate professor of history at York Univeristy.
H.V. Nelles
Affiliation:
H.V. Nelles is professor of history at York University.
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Abstract

Though Canada was, in the opening decades of the twentieth century, a net capital importer, Canadian-based companies dominated the Mexican public utilities industry. In this article, Professors Armstrong and Nelles explain how this “curious capital flow” came about. Their explanation stresses the personal ties linking Canadian businessmen to the maverick American engineer-entrepreneur F.S. Pearson. In addition to detailing these ties, they describe the methods used to finance the promotions, speculate about the insiders' rates of return, and estimate the origins and magnitude of the capital involved.

Type
Research Article
Information
Business History Review , Volume 58 , Issue 2 , Summer 1984 , pp. 178 - 203
Copyright
Copyright © The President and Fellows of Harvard College 1984

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References

1 W.G. Muller to Sir Edward Grey, 26 July 1906, vol. 32, folder 368, Public Record Office (hereafter PRO), London.

2 A.C. Grant Duff to the Marquis of Lansdowne, 16 February 1904, vol. 535; George Greville to Lansdowne, 24 December 1904, vol. 537; both in folder 50, PRO; A. W. Donley to James Parsons, Jr., 30 March 1905, National Archives, RG 84, c 8.2; on Canadian relations with Mexico see Ogelsby, J., Gringos From the Far North (Toronto, 1976), 66–84.Google Scholar

3 Calvert, Peter, Mexico (New York, 1973), 41–70Google Scholar; Cumberland, Charles C., Mexico: The Struggle for Modernity (New York, 1968), 190–272Google Scholar; Hansen, Roger D., The Politics of Mexican Development (Baltimore, 1971), 11–29Google Scholar; Vernon, Raymond, The Dilemma of Mexico's Development (Cambridge, 1965), 33–59.Google Scholar

4 Delorme, Robert L., “The Political Basis of Economic Development: Mexico, 1884–1911,” (Ph.D. diss., University of Minnesota, 1968), 65–124Google Scholar; Romney, Joseph B., “American Interests in Mexico; Development and Impact During the Rule of Porfirio Díaz, 1876–1911,” (Ph.D. diss., University of Utah, 1968), 1–8Google Scholar; Wright, Harry K., Foreign Enterprise in Mexico (Chapel Hill, 1971), 51–94.Google Scholar

5 May, Herbert K. and Arena, Jose, Impact of Foreign Investment in Mexico (Washington, 1972), 8–12, 61–66Google Scholar; Vernon, Dilemma, 51–59. Canada's dependence upon foreign capital differed from Mexico only by degree. Kenneth Buckley has estimated that foreign capital, most of it British, accounted for 23.5 percent of gross domestic capital formation between 1901 and 1905, and 34.3 percent in the period 1906 to 1910. From 1911 to 1915 the ratio rose to 46.2 percent, Capital Formation in Canada, 1896–1930 (Toronto, 1974), 15.

6 Historia Moderna de Mexico, La Vida Economica (Mexico, 1965), 1089, 1156.

7 Platt, D.C.M., Latin America and British Trade, 1806–1914 (London, 1972), 274–304Google Scholar; Tischendorf, Alfred, Great Britain and Mexico in the Era of Porfirio Díaz (Durham, N.C., 1961), 128–38Google Scholar; Rippy, J. Fred, British Investments in Latin America (Hamden, 1966), 67–68, 242–45Google Scholar; Stone, Irving, “British Long Term Investment in Latin America, 1865–1913,” Business History Review 42 (1968): 311–39.CrossRefGoogle Scholar

8 Monetary Times, 7 July 1905.

9 Platt, Latin America and British Trade, 253.

10 The best biographical source for F.S. Pearson is William Steams Morse's “The Yankee Spirit,” an unpublished manuscript in the Brascan Archives in Toronto. On the engineering and financial problems presented by the modernization of these two street railways, see Cheape, Charles W., Moving The Masses (Cambridge, 1980).Google Scholar

11 Max Aitken to W.D. Ross, 1 February 1905, Beaverbrook Papers, series A, vol. 7, House of Lords Record Office (hereafter HLRO).

12 James Dunn to F.S. Pearson, 15 August 1906, James Dunn Papers, vol. 249, Public Archives of Canada (hereafter PAC).

13 F.S. Pearson, Settlement of Debts, 1923, James Dunn Papers, vol. 3, PAC.

14 Mexican Light and Power Company Minutebook (hereafter MB), 13 October 1902. These minutebooks are in the possession of a Toronto law firm, and we are grateful to the Mexican authorities for granting us permission to consult them.

15 Ibid., 20 January 1903; biographical information can be found in Morgan, Henry, Canadian Men and Women of the Time (Toronto, 1912).Google Scholar

16 F.S. Pearson to James Dunn, 9 March 1906, vol. 6; and Dunn to Pearson, 5 April 1906, vol. 249; both in James Dunn Papers, PAC; see also the Canadian Annual Financial Review, 1910, 507–11.

17 Max Aitken to C.H. Cahan, 30 April 1906, Beaverbrook Papers, vol. 13, HLRO.

18 Sperling & Co. to James Dunn, 2 April 1906, confidential; and F.S. Pearson to Sperling & Co., 14 April 1906; both in James Dunn Papers, vol. 6, PAC.

19 This contest is extremely well documented in the minutebooks of the Mexican Light and Power Company; gossip is supplied by the Beaverbrook Papers, vols. 24, 25, and 28, and the James Dunn Papers; vols. 11 and 12 contain most of the inside information on the aggression by the Tramway Company. For the anguished diplomatic reaction see PRO, folder 371, vol. 480. The events are followed at a distance in the Canadian financial press, in particular the Monetary Times and the Montreal Star.

20 See, for example, the listings in the Montreal Star, 17 February 1909.

21 Rippy, British Investments, 67; May and Arena, Impact of Foreign Investment, 11–12; Historia Moderna de Mexico, 1174. For a brief survey of the foreign control, regulation, and eventual nationalization of the Mexican electric industry, see Wionczek, Miguel, “Electric Power: The Uneasy Partnership,” in Public Policy and Private Enterprise in Mexico, ed. Vernon, Raymond (Cambridge, 1964), 21–110.Google Scholar

22 B.E. Walker to H.J. Gardiner, 27 February 1908, BE. Walker Papers, University of Toronto Archives.

23 Max Aitken to C.H. Cahan, 30 April 1906, Beaverbrook Papers, vol. 13, HLRO. For a hint of his remarkable career as a promoter of company mergers see Taylor, A.J.P., Beaverbrook (London, 1972).Google Scholar

24 Max Aitken to C.H. Cahan, 30 April 1906, Beaverbrook Papers, vol. 13, HLRO.

25 F.S. Pearson to Aitken, 2 March 1904, vol. 3; W.D. Ross to Aitken, 30 March 1904, vol. 4; and Aitken to C.H. Cahan, 20 August 1904, vol. 3; all in Beaverbrook Papers, HLRO.

26 James Dunn to CF. Fischer, 30 May 1906, James Dunn Papers, vol. 248, PAC. Dunn, who had just arrived in London, had given some brokers a 25 percent bonus and others 12.5 percent.

27 Max Aitken to W.D. Ross, 18 June 1904, Beaverbrook Papers, vol. 4, HLRO.

28 W.D. Ross to Aitken, 29 June 1905; Aitken to W.D. Ross, 4 July 1905, and 13 July 1905; and Ross to Aitken, 17 July 1905; all in Beaverbrook Papers, vol. 4, HLRO.

29 James Dunn to William Mackenzie, 4 May 1906; personal, 7 May 1906; and James Dunn to A.E. Dyment, 30 April 1906; all in James Dunn Papers, vol. 248, PAC.

30 We have calculated a simple average annual rate of return, sufficient for our purposes, using dividend, interest, and capital gain data recorded in the Canadian Annual Financial Review, various issues. For a much more sophisticated method see Edelstein, Michael, “Realized Rates of Return on UK Home and Overseas Portfolio Investment in the Age of High Imperialism,” Explorations in Economic History 13 (1976): 283–329.CrossRefGoogle Scholar

31 MB, minutes of the fourth annual meeting, 26 February 1908. We were able to identify the owners of 87 percent of the shares voted using standard biographical reference sources and Canadian city directories. The seventy-two individuals holding the remaining 13 percent of the shares were most likely small-scale capitalists who were impossible to track down. The owners of the 50 percent of the shares not voted included F.S. Pearson, most of the British stockholders, and probably many more small-scale Canadian investors.

32 This total corresponds approximately to that given in Historia Moderna de Mexico, La Vida Economica, 1088 (i.e. $112,099,000); however the distribution between companies differs somewhat.

33 For the earliest and clearest statement of this principle, see William C. Whitney, quoted in Cheape, Moving The Masses, 55.

34 MB, 10 August 1907.

35 This information on the terms of the Mexican Light and Power underwriting is drawn from the minutebooks. Information on Mexico Tramways is from evidence widely scattered through the James Dunn Papers.

36 Department of Trade and Commerce Records, vol. 61, file 19838; and vol. 189, file 27917; both in RG 20, PAC.

37 Muller to Sir Edward Grey, 26 July 1906, vol. 32, folder 368, PRO.

38 For an example of this sort of calculation see F.S. Pearson to James Dunn, 9 March 1906, James Dunn Papers, vol. 6, PAC.

39 MB, 9 October 1903.

40 Ibid., 19 December 1906. Pearson's New York office was authorized to handle $200,000 in purchases over the following six months.

41 Vernon, Raymond, Sovereignty at Bay (New York, 1971), 60–61Google Scholar; Buckley, Peter and Roberts, Brian, European Direct Investment in the USA Before World War I (New York, 1982), 25–29CrossRefGoogle Scholar; Dunning, John H., Studies in International Investment (London, 1970), 143–89Google Scholar; Thomas, Brinley, “The Historical Record of International Capital Movements to 1913,” in Adler, J.H., Capital Movements and Economic Development (New York, 1967), 10.Google Scholar

42 Buckley and Roberts, European Direct Investment, 96–111; Marr, William and Paterson, Donald, Canada: An Economic History (Toronto, 1980), 265–301.Google Scholar

43 Wilkins, Mira, The Emergence of Multinational Enterprise (Cambridge, 1970), 113–48.Google Scholar

44 Williams, William Appleman, The Roots of the Modern American Empire (New York, 1969)Google Scholar; LaFeber, Walter, The New Empire (Ithaca, 1963).Google Scholar For a critique we found helpful, see Becker, William H., The Dynamics of Business Government Relations (Chicago, 1982).Google Scholar

45 Kindleberger, Charles, American Business Abroad (New Haven, 1969) 1–35Google Scholar; Buckley and Roberts, European Direct Investment, 5–10.

46 See the comparative study of corporation law done by the British Board of Trade, Comparative Analysis of the Company Laws of the United Kingdom, India, Canada, Australia, New Zealand and South Africa with a Memorandum Prepared for the Imperial Conference, 1907 (London, 1907, rev. 1911)Google Scholar.

47 C.H. Cahan to James R. Parsons, Jr., 23 November 1905, USNA, RG 84, Consular Post Records, Mexico City, c 8.2.

48 Quoted in Hopkins, J. Castell, Canadian Annual Review of Public Affairs (Toronto, 1909), 623.Google Scholar