The political shame of Mexico

Introduction

IN this book are described many occurrences which the writer saw and the characters and acts of many persons whom he knew more or less intimately. The knowledge which came through direct observation was supplemented, while it was being acquired and afterwards, by very fortunate investigations undertaken in the beginning as a business necessity. During the time when the responsibility for Mexico was so securely fastened upon the United States that it could not be shaken off, the author of this volume was most favorably situated for the acquirement of information — and by that word is meant the core and not the rind.

The distinction is vitally important, for in Mexico things are never what they seem. This general truth seems there to have a particular manifestation, for though Mexico is next neighbor to the United States, the government at Washington, if one may judge by its acts, has seen on the far side of the Rio Grande nothing but a series of illusions many of them artificially produced in a manner which I have here attempted to describe.

It may , be asserted with confidence that the mere outward and visible story of Mexico, a record of what happened on the surface from the last days of Diaz to the most recent incident of American interference, would puzzle rather than enlighten the usual reader, even though accurately told. A view of the events more interesting and influential which took place behind the scenes is requi-

INTRODUCTION

site for just judgment of the actors. This view I have tried to give by offering material which I have had the opportunity to gather not from books, for none contain it, but from men. The vast outpourings of the daily press have contained much important truth which the person already well informed could recognize ; but it is fair to say that the paths by which the United States and Mexico reached the point where collision was inevitable have never been disclosed.

In the recent astonishing relations between the two countries the part played by President Wilson has been so puzzling and so prominent that the antecedent characters and events have lost something of their proper value. Justice to the President demands more than an analysis of his own acts and intents. He received the Mexican trouble, loaded with a high explosive charge, from the hands of his predecessor, and no right judgment of his course can be formed unless one knows the contents of the sealed parcel and how that contents came to be within. In order to reveal this it is necessary to get close to the actual human interplay, beyond the obvious, behind the conjurer, where the eggs are actually broken for the omelet which later seems to come out of a borrowed hat.

Keeping faith with facts will involve criticism, implied or open, of the men who guided the devious policy of the United States in this affair, a policy almost invariably honest, almost invariably mistaken, sometimes innocently, sometimes grimly amusing, as destiny or the hidden acts of men determined. The situation calls for an interpreter of facts, for a teller of the story. The difficulties which have beset President Wilson, the problems of the recent past and of the unfolding future, are unsolvable without a knowledge of it.

The promptings to constructive statesmanship unheeded

INTRODUCTION

by President Taft, the evidences of official irritation, the errors due to complacent misconception of the Mexican people — these and other vital phases of a course that seems inexplicable, need to be opened to view so that broad and practical application of American ideals may take recognizable form in a fixed and comprehensive policy toward Mexico and Latin America which shall not be subject to political bias or official whim, but shall stand unchanged in vital principle from year to year and from term to term.

With understanding, this may be possible ; without it, the recent past may be repeated with increasingly deplorable results, and our country may go on indefinitely from one blunder to the next, guided by impulse and the varying dictates of political expediency.

Contents

CHAPTER PAGE

I Behind the scenes in the last days of Diaz — September-November, 1910 I

11 Jose Yves Limantour, the arbiter of Mexico's destiny

Chapter I

IN order to justify the text that in Mexico things are never what they seem, let us cite an instance very conspicuous. This will necessitate glancing back a little way, four years or thereabouts, along the panorama of that country's recent history. So glancing, the observer's eye is naturally attracted to a brilliant spot, in a physical sense surely the best lighted scene of Mexico's drama. The reference is to the great Diaz celebration with its myriad lamps. There we shall come upon a clue which will lead us to the end of the story, out of the brilliance into the shadow, and through paths exceedingly obscure, hopelessly difficult for those that have no guide.

The centenary of Mexico's independence was celebrated in September, that dazzling September of 1910. For the entire month the " asphalt section " of Mexico's capital was cleared of its twelve hundred beggars and dressed in its party clothes. Receptions, banquets, parades — all the spectacular extravagances of a nation's festival — filled the days and nights with obvious rejoicing. The most beautiful women from interior and coast cities and from the haciendas of the " hot country " were gathered in Mexico City and distributed like flowers to grace a thousand entertainments.

Special envoys from all the great nations and most of the little ones of Europe, Asia, Africa and every variety of America — torrid, temperate and frozen — were present to participate in the events that marked the realization in Mexico of the fabled golden age, the season of prosperity and peace. Such honors as come only to the exalted were heaped upon Porfirio Diaz. He was "The Moses and Joshua of his people " by the phrase of Andrew Carnegie, " The prodigy of nature " according to Tolstoy, a personage " to be held up to the hero worship of mankind," as Elihu Root expressed it.

The thirty September days of bunting and glitter and military show, the thirty blazing nights of electrical effulgence toned to tenderness in the seclusion of patio and boudoir — the never-to-be-forgotten Centennial nights — floated away at last upon the river of time whose somber bosom they had brightened for a space. The President's ball, that Belshazzar feast of the Diaz regime, at which Mexico's monarch aided by seven thousand of his richly attired people received the gold-laced diplomats of the world — that revel where twenty carloads of champagne were poured out by five hundred picturesquely costumed servitors in rivers and lakes of wine flooding the Palacio Nacional and overflowing into the Plaza de la Constltucion — that gorgeous celebration went flaring into the past. And in the light of ordinary day the government of Porfirio Diaz loomed as large as it had seemed amid the torches, and the voice of his authority was as loud as the innumerable instruments of music which had just performed an anthem to his glory.

All these things surely happened, and there was no unusual lack of sincerity among the participants; but what is the truth that lay behind? The way to discover it is to forget for the moment all the personages present at this remarkable celebration, and concentrate our attention upon one who was not there, the most powerful man connected with the Mexican government at that time, the man upon whom, far more than upon the aged dictator, the safety of the State had for some years depended. His absence, rightly understood, may rank among the most notable features of the occasion and provide us with an essential clue to the long train of subsequent disasters. The man was Jose Yves Limantour.

The name is well known to financiers in Europe and America, but for the information of the general reader a few words of introduction will be necessary. Jose Yves Limantour is of French parentage, the son of that Jose Yves Limantour who in the eighteen-forties attempted to establish claims to important parcels of land on the coast of California, including four square leagues now covered by the city of San Francisco. The claims were based on grants dated in 1843, ^^^ bearing the name of Manuel Micheltorena, governor of California while it was a Mexican province, prior to the cession of 1848.

More than six hundred thousand acres were in controversy, and the parcels had been judiciously marked out along the shores of bays that would be harbors populous with shipping. The grants purported to have been bestowed in consideration of certain moneys, supplies and services furnished and rendered by Limantour. They were, however, disallowed in their entirety by a decision of the United States District Court for the Northern District of California in 1858 after much complaint of inconvenience suffered and expense incurred by persons desiring to transfer property situated within the area. If the grants had been sustained, the present Jose Yves Limantour might be now the richest man in the world. Judge Ogden Hoffman, who rendered the decision in a paper exceeding 25,000 words, estimated the value of the San Francisco property alone at $15,000,000, and that was fifty-six years ago. The document printed on paper now yellowed by time, is to be found by the curious in the public library of the city of New York.

To the authentic and recorded story of the Limantour claim, sufficiently romantic in the coldest recital, tradition has appended a tragic sequel. Appeal, so runs the tale, was to be taken from the judgment of the court, and two important witnesses were brought from Mexico to aid the new contention. These witnesses are said to have been waylaid in San Francisco, with consequences mortal to the men and to the cause which they would have supported with their voices. Thus it died, and the courts knew it no more.

Jose Yves Limantour, the son, did not inherit the metrc^olis and other choice bits of California. He did inherit, or at any rate he has disclosed, a marked ability in finance. His gifts, if one may judge by his management of personal affairs, did not include his father's very distinguished temerity, but refined and modernized they became one of Mexico's strongest assets.

His heritage of talent was not his only portion, for although the elder Limantour suffered defeat in San Francisco, he was more successful at Mexico City. When Benito Juarez closed the nunneries and monasteries of Mexico, and sold the church property at auction and appraisal, Seiior Limantour was very favorably placed for profit, and he laid the foundations of a comfortable fortune.

Jose Yves, the son, was born on March 19, 1855, and therefore took no part in these ventures which later furnished him with capital which he has jealously guarded. Close scrutiny of his administration of the property which thus came to him fails to reveal the slightest tendency to financial hazard on his own account. It may also be definitely stated that those who did business with him in his official capacity found him a hard bargainer. His early career as a lawyer need not be detailed. The law did not attract him, and he was speedily drawn away from it by the superior fascination of financial study.

The financial problems of Mexico, as that country struggled into cohesion and order, afforded a broad and fertile field for Limantour's talents, and the attention of Porfirio Diaz was drawn to him. He was made Sub-Secretary of Finance in 1893, and succeeded to the portfolio in 1894, and it was as Minister of Finance that he carried out the plan which placed Mexico on a fifty per cent, gold basis — a plan which bears his name. Values had for a long time been shifting up and down with the unceasing fluctuations of the silver market. The Limantour plan introduced a kind of stability by which the nation profited. Individuals also were benefited, none more conspicuously than the business managers of the circle which had developed from the Society of the Friends of Porfirio Diaz, and which came to be known as the Cientificos.

The significance of the name, Cientifico, is difficult to convey ; it was not in every instance a brand of odium. The Cientificos who were members of the Diaz cabinet accepted the title as a distinction. They were proud of their positions and jealous of their personal honor. They were overrated men with two exceptions, Limantour and Ramon Corral. Limantour possessed even a greater brain than popular estimates credited him with ; Corral was quite correctly placed as unfit for preferment.

Outside of the cabinet the term Cientifico stood for scientific business. The science lay in methods similar to those which have been followed by political rings in the United States and elsewhere, and the ring had existed several years before it was christened. Its chief source of profit was government patronage. By means of this it became well entrenched throughout the length and breadth of the land, and grew to dominate the government of Porfirio Diaz more fully than the head of that government was aware of. Thus the Cientificos from 1903 onward became increasingly powerful, and popular judgment drew no fine distinction between those who were Cientificos for personal profit and those whom higher motives actuated.

The leading spirits of the Cientifico ring met fortnightly to plan current and prospective business and to maintain the equilibrium of their affairs by means of the suppression, the dissemination, the coloring of news, the division of profits, and the distribution of rewards and punishments to friends and enemies. The men who so met included Reyes Spindola, then owner and editor of El Imparcial, the leading daily newspaper of Mexico, and Francisco Bulnes, the cleverest parliamentarian of Mexico and most effective writer, whose function it was to direct the so-called " independent " element in the Mexican Congress, a spurious opposition party which was in reality as subservient to Diaz as any other factor in the government. One of these men operated the Diaz press agency, and the other did the " floor work " in Congress for the ring.

There were fourteen other men in this inner circle, including officials of the Banco Nacional, the Banco Central, and the Banco de Londres y Mexico; the Governor of the Federal District and a few men of influential families with powerful business connections. The Paper Trust, or the San Rafael Paper Company, which held a monopoly of news-print paper by means of protective tariff amounting to about two American cents per pound, was one of the great interests represented. Another was the Cigarette Trust, " El Buen Tono," which made practically all the cigarettes of Mexico, and was managed by a shrewd Frenchman. The Pulque Trust which included many of the great pulque growers, and dominated the distribution of Mexico's national beverage, had its delegate among the Friends of Diaz, the Cientificos.

The active manipulators of the Bancaria were members. This institution carried departments for banking and contracting, and was the clearing house through which big business was carried on, and the profits thereof divided. The Bancaria took the contracts for internal construction work throughout Mexico, for buildings, sewers, paving, waterworks, etc. It subcontracted to favored men, who frequently again subcontracted to local companies or individuals. The last price received by the contractor who did the work was generally a very small fraction of the original figure secured by the Bancaria — as low as four fortyninths in one instance.

No city or town in any state of Mexico could lay a gas pipe, or pave a street, or remodel or erect a public building without the consent of the governor of the state. If the project was approved such press matter as was deemed desirable for preparing the public mind was printed in El Imparcial, and the contract for the work was arranged between the governor and the Bancaria. The major part of the " graft " was provided for in this transaction ; the minor state and district officials arranged for their shares with the subcontractor.

Close observation of the business morals of the Diaz regime disclosed strange contradictions. Most of the operations carried on by the governors of the various states reeked with graft, and it is certain that deals were made by some of the departments of the central government itself which brought larcenous profits to the parties thereto at the expense of the treasury. On the other hand that government, as revealed to foreign gentlemen in heavy transactions covering many years, was characterized by remarkable integrity. " The most scrupulously honest of modern governments," is the certificate of character bestowed upon it in personal statements to me by men whose opinions are among the first that would be sought by any competent inquirer. It is a hard saying, to be interpreted only through some difference of definition, or perhaps through the more intimate acquaintance which these seeming eulogists of Diaz have with the other governments to which they referred.

It should be noted, also, that these distinguished witnesses dealt usually with Porfirio Diaz direct, or with his ministers who feared his wrath ; not with the Cientificos of business whose operations were openly for revenue with little regard for scruples. The dictator was not a grafter in the ordinary sense, nor was he tolerant of this iniquity ; yet there was vast and various grafting in Mexico, accruing to the temporary benefit of Diaz politically if not pecuniarily, for these operations steadily widening in scope were used to weld a nation-wide interest in support of the political system which the Society of the Friends of Diaz was thus enabled to maintain.

The Cientifico business circle had a highly developed system to prevent intrusion upon its field. This central organization came to be known as the " Full Car," but the term Cientifico was broadly used to designate any person actually or supposedly connected with these operations, even in a state remote from the capital. The great combination was spread over the whole country ; its members were held together by what has been called in America the cohesive power of public plunder. They were shouters for Diaz, a great army of the bandits of business, a strong defense for the throne so long as he who sat thereon could manage them or could avail himself of the services of a grand vizier equal to that task. No one else was ever so successful in this role as Limantour.

It would be absurd to say that the ring had no corrupt point of contact with the central government; but I should be sorry for any one who would assert and try to prove that the point of contact lay in the Department of Finance under the eye of Limantour. This gentleman was not in the cabinet for profit, but for reputation, for enduring fame. He was rich already ; he was not to be bought. What he had set his heart upon was to make his genius shine upon the pages of his country's history, so that the record would inevitably survive his mortal body. The more immediate reward he hoped for is to some extent a secret of his own bosom, and may be permitted to remain there without serious detriment to the exposition which I am here attempting; but the miore important of those labors by which he expected to achieve a permanent distinction are essential features of any clear statement of the Mexican problem as presented for solution to the United States.

The greatest of these labors, and the one that is likely to have the gravest consequences, is the merger of Mexico's railways, a piece of high finance not unworthy of comparison with even the welding together of the United States Steel Corporation. There were staggering difficulties in the way of this consolidation which placed under the control of the ]\Iexican government nearly 8,000 miles of railway, and .brought the diversified interests controlling the various companies under one management. No man in Mexico but Limantour could have accomplished it. The total authorization of new securities provided for in the resulting corporation was $1,270,000,000 (Mexican). And this colossal affair was placed upon a practical operating lo THE POLITICAL SHAME OF MEXICO

basis by the sale of only thirty-three millions of bonds to pay floating debts and provide for organization expenses and working capital.

This merger influenced the course of Mexico's fortunes in various ways, and the end is not yet, as I shall show in a subsequent page. The matter is important here because in the inwards of it will be found the chief reason for Sefior Limantour's absence from the Diaz Centennial, and from his country for some months before and after that extraordinary festival. During that absence the mischief -which the United States and Mexico are now paying for was hatched, and it is necessary to follow up the clues which promise an explanation of what took place.

The idea of the merger was not Limantour's; it originated in the brain of Edward H. Harriman — unless some mute, inglorious clerk conceived it while his skull happened to be in the range of his great master's vision. Let Harriman stand as the real author. He perceived in the disjointed railways of Mexico an opportunity to extend his own dominion, and secure a very valuable permanent advantage for the Southern Pacific which runs alongside the Mexican frontier from the Gulf to the Western ocean. He studied the subject with characteristic thoroughness, and was deeply impressed. Then he opened communication with Mexico City, making his approach not to Porfirio Diaz but to Finance Minister Limantour. This was in 1902.

Harriman wasted no time with the mails or in sending a representative to prepare the way. He cabled to Limantour asking for a secret interview upon important matters whose nature he did not state. The Minister of Finance replied agreeably, and a few days thereafter Harriman arrived at Mexico City incognito, proceeding at once to Limantour's house on Avenida Juarez, where the two men held a long conference.

THE POLITICAL SHAME OF MEXICO ii

Harriman set forth the situation with intelHgence and power. He made it clear that railway traffic arrangements in the Mexican republic were ill contrived and inefficient. Between certain points there were lines engaged in wasteful competition, while many promising regions were wholly destitute of railway facilities. He instanced the Mexican Central, controlled by Henry Clay Pierce, which operated over the 1,200 miles from Mexico City to El Paso, and was waterlogged with debt. This line, said Harriman, if administered properly in a community of interest with others which then competed over a large part of the mileage would become a dividend-payer. He could secure control of the Central at any moment, but it would be useless to do so while the Mexican government held the National Line to Laredo and could make or break the Central at the whim of those who might come into power.

Under existing conditions, Harriman argued, none of the railways could be operated with efficiency or made to yield the profit which modern methods could extract. Until these methods should be applied the development of Mexico's resources must be greatly retarded. Mexico with its millions of acres of untilled land was importing wheat and cotton ; its manufacturers of woolen and cotton fabrics were hampered by excessive costs of raw material. Flour was an untasted luxury for nine-tenths of the population. Native sugar was supplied in great cones unrefined. Many rich mines were remote from transportation. Stock raising, except in the northern states, was haphazard and unremunerative; and within fifty miles of Mexico City native farmers were plowing with a crooked stick.

The remedy lay with the railways, and the only practical solution of the problem which their inefficiency presented was a general consolidation. This he was prepared to undertake at once ; he would guarantee its success, and would carry through all necessary financial negotiations, in return for stock control of the merger.

Jose Yves Limantour is not an impulsive man. He absorbed all the wisdom that fell from Harriman's lips, understood fully that the proposals did not transcend the American railway wizard's power, and perceived the material benefits which Mexico would derive from accepting them; but he was not led by enthusiasm into the giving of any hasty assurances. He asked for ten days' time, and Harriman was forced to consent, reluctantly, and to leave Limantour unpledged.

Harriman went from Mexico City to California where an attack of acute appendicitis necessitated an immediate resort to surgery. When he had rallied sufficiently to attend to business, he received Limantour's regretful declination, expressed so definitely as to close the incident. Not long afterwards Harriman learned to his astonishment that from the day of their conference Limantour had applied himself to the great railway problem, utilizing the plans which the American had so exhaustively outlined. There seems to have been nothing questionable in this appropriation. Harriman was past his majority and his wisdom teeth were cut. He had sought the interview, had exacted no promises, and the bulk of what he had said consisted of facts open to any man's observation.

It was natural that Limantour should desire to do this important work sO' attractive to an ambitious financier. Patriotism doubtless urged him to put the achievement on the scroll of history to the credit of a Mexican. But reasoned distrust of American control of the railways could hardly have been the determining factor with him, despite his well known opposition to monopolistic tendencies of ^Americans. In this affair the real hazard would have been Harriman's, the Mexican government being in a position fully to protect its interests through the concession which Harriman must secure. It suffices here that the Finance Minister himself assumed the task, and that his labors resulted six years afterwards in the Limantour merger, the National Railways of Mexico.

Six years would have seemed a long time to Harriman for the completion of this bit of business, but aside from any difference of ability and experience, there were obstacles which multiplied as Limantour advanced, and of course he lacked the pecuniary resources which the American would have had at command. Sharp criticism was inevitable; scandal was to be expected, for when have they failed to follow a consolidation of such magnitude? It was everybody's business, for the government was involved as the ultimate holder of voting control which necessitated a large capitalization, and as guarantor of the issue of second or general mortgage bonds of which three hundred and twenty millions (Mexican) were authorized. Critics thought the sum excessive, and they attacked the plan of the merger at various points as being burdensome and perilous. Scandal mongers found material in the array of counsel which Limantour employed, and in the distribution of fees — a matter out of which more trouble was manufactured than might have seemed possible.

Three prominent law firms of New York, Strong & Cadwalader, Cravath, Henderson & De Gersdorff, and Underwood, Van Vorst & Hoyt, received $125,000 apiece for services which were said to have been the reverse of arduous. George W. Wickersham received $20,000 for getting the New York end of the work done by a man under his supervision. Two lawyers of Mexico City, among the leaders of that bar, and of nearly equal rank, were engaged upon the intricate practical details of the immense consolidation. The fee paid to one of them, Pablo Macedo, was $150,000. The other, Pablo Martinez del Rio, died in 1909 while the work was still unfinished though the merger itself had been effected. To his estate was paid only $25,000 in requital of his services which were said to have been quite as valuable as Macedo's.

This discrimination wears even now a somewhat mysterious aspect, but there could be no mysteries for the critics of Limantour and his merger. These persons must know all, or cover the deficit with ingenious fiction, and consequently they drew upon their very competent imaginations and brought forth a tale. There had been a private arrangement, so they said, among Limantour, Martinez del Rio and certain other men whereby a block of some thirty millions (Mexican) of National Railway bonds was to be sequestered and divided, but this proceeding had not been completed during Martinez del Rio's life. His widow, according to this legend, was aware of the agreement whose terms were in a written instrument, but she encountered dijfficulties in persuading Limantour to deliver her late husband's share of the bonds or even to set right the inequitable fee. Vain efforts to obtain a satisfactory adjustment brought her to the end of her patience, and she laid her wrongs before Porfirio Diaz, who was incensed by the injustice of Limantour in the matter of the fee, and shocked by the disclosure as to the bonds. Immediately he called the Minister into his presence, and a violent scene ensued wherein their friendship of so many years' endurance was disrupted.

If the story had stopped there, and nothing out of the ordinary had been visible in the course of affairs at Mexico's capital, the effect would have been inappreciable; for in the sixteen years that Limantour had served Diaz and the State as Minister of Finance, opportunities for his personal profit had been innumerable, yet his record was clean. But the scandal was set going at a time when enmities were ripening on every hand, and bitter feeling was the order of the day. It was relished by many, and magnified in the retelling. The dictator was said to have thrown his cane at Limantour as he drove him from his presence with threats which put the minister in fear of death, so that he hid four days at Tlanepantla, a suburb of the capital, and finally fled disguised as a priest across the frontier into the United States. That he still retained his cabinet office could not be denied, even by the least responsible of his detractors, but it was asserted that the quarrel with Diaz was a final breach, and that some months later Limantour joined with the enemies of the tottering dictator to ensure his overthrow.