Coffee and Power

São Paulo agriculture turned into a machine of state, and the state into an instrument of agriculture.

If the Port of Torres revealed what the Republic refused to build, coffee reveals what it was willing to finance. The paulista plantation became a machine of State — and the State an instrument of the paulista plantation.

> "It is not enough that the profit be private; the loss must also be public. That is the whole formula of the regime."

2.0 Introduction

The first essay dealt with a port that never was. This one deals with the port that was — and with what flowed through it. If Torres was the abandoned promise of a balanced development, Santos is the materialisation of its opposite: the consecration of a single product, a single region and a single class as the horizon of the State itself. Between 1889 and 1930, coffee ceased to be a crop and became, before anything else, a way of governing. It turned into budgetary language, into monetary policy, into diplomacy, into an army — and finally into the totality of the regime.

What is usually called the First Republic is, in large measure, the institutional extension of an agricultural culture. This is not a metaphor. It is a fact about the architecture of the State: the central instruments of Brazilian economic policy in that period — exchange rates, credit, foreign debt, currency issue, taxation — were modulated, at decisive moments, to solve the immediate problem of the profitability of paulista coffee. The federative Republic, in its design of 1891, gave the exporting states the fiscal autonomy needed to sustain that arrangement; the Union, in turn, gave them what the states could not give themselves: exchange-rate rescue, foreign guarantees, cheap credit. It was effective engineering. For coffee.

2.1 The bean as engine

Between 1880 and 1906, Brazilian coffee production tripled. The advance of the agricultural frontier in western São Paulo drew on the massive use of immigrant labour, always financed either by the states or by loans from the central government at very low interest to the planters. Those measures, together with rail integration to the port of Santos, created a productive complex without precedent in the economic history of Latin America. In the first two decades of the Republic, coffee accounted for more than sixty per cent of Brazilian exports; in some years it passed seventy. Brazil was, in the terms of the international economy of the day, a mono-exporter — and the mono-exporter was a regional oligarchy that dominated the central government.

That concentration had two linked effects. The first is obvious: the fortune of the federal budget depended on the fortune of the sixty-kilo sack, because the State was coffee. The second: those able to press the State into stabilising the price of coffee came, through that pressure, to determine the direction of macroeconomic policy for the whole country. When prices fell, it was not the planters who absorbed the loss — it was the Treasury. When they rose, it was not the Treasury that collected the surplus — it was the planters. The mechanism described in the first essay in connection with the port concessions — the State as guarantor of losses, private parties as beneficiaries of gains — reappears here, enlarged to national scale, and perpetuating itself. Coffee was therefore not merely the principal export. It was the principal political creditor of the State. And every creditor collects.

2.2 Coffee with milk — the oligarchy as the real constitution

The Constitution of 1891 provided for federalism, elections, the separation of powers. The real constitution of the Republic was another thing: a tacit pact between the oligarchies of São Paulo and Minas Gerais by which the two states alternated control of the Presidency and, with it, control of the federal instruments that protected coffee. What the historiography christened the politics of coffee with milk is, read rigorously, a contract of shared responsibility: São Paulo guaranteed the continuity of coffee policy; in exchange, Minas guaranteed a share of the political and budgetary bonuses — and, at critical moments, the parliamentary margin needed to approve the rescue operations.

The rest of the federation entered this arrangement as decorative framing. Rio Grande do Sul — whose abandonment, discussed already, begins at Torres — is treated by turns as military spoil and as an electoral reserve. The Northeast, its sugar economy already in structural decline, is left to the management of local oligarchies that receive federal posts in exchange for discipline in Congress. Amazonia was tolerated while the rubber prosperity lasted; when the cycle exhausted itself, it was forgotten. Outside the Rio–São Paulo–Minas axis, federalism worked as a pension scheme: it distributed alms, no project, and still less competence.

It is worth noting that the phrase coffee with milk understates what actually happened. Mineiro milk never had economic weight comparable to paulista coffee. The alliance is therefore not between equals; it is an alliance in which São Paulo agrees to share political power so as not to have to share economic power. Minas, with a smaller share of planters, compensated with the largest electoral college in the Republic. Minas receives posts; São Paulo receives federal investment and exchange-rate policy, and the association benefits both.

2.3 The Taubaté Convention — socialising the losses

In February 1906, the presidents of São Paulo, Minas Gerais and Rio de Janeiro met at Taubaté and signed what would become the founding document of republican coffee policy. The Taubaté Convention established that the State would buy the surplus of the harvest in order to withdraw it from the market and sustain the international price of the bean. The federal government — then headed by Rodrigues Alves, a paulista — was initially sceptical, but the mechanism ended by being absorbed by the Union under Afonso Pena, a mineiro, and consolidated in the form of successive operations of valorisation.

The architecture of the Convention deserves examination. Three pieces hold it up. First: the State buys the excess production with money borrowed abroad, offering the stored coffee itself as security. Second: the State bears the interest, the storage costs and the exchange risk while the stocks wait for a favourable moment to be sold. Third: when prices rise and the stocks are sold, the net product of the operation returns to the planters, almost always by way of rebates, tax abatements or reductions in state export duties.

What is technically called the valorisation of coffee is, in less pious language, the socialisation of losses and the privatisation of gains on an industrial scale. In 1906, in 1917 and in 1921 the cycle repeated with variations of form and identical consequences of substance. With each repetition the Treasury sinks a little further, the foreign debt grows, and the State's capacity to finance any policy other than coffee diminishes in the same proportion. Projects like the Port of Torres are not abandoned for want of money. They are abandoned because the money exists but is already committed.

2.4 Encilhamento and exchange — the currency as subsidy

The Encilhamento must be examined in the light of its structural function. The uncontrolled issue of paper money by Rui Barbosa in 1890 and 1891, often narrated as an episode of naivety or adventurism, answered a specific political need: to capitalise, in the very short term, the paulista propertied class weakened by an abolition that came without indemnity. The Golden Law of May 1888 had left the planters without the financial counterpart that in other countries accompanied emancipation — Britain indemnified the owners in 1833, France in 1848. The Republic, eighteen months later, needed to make good.

It made good in two ways. The first, direct, was credit expansion through licensed banks of issue: there was an encilhamento in the strict sense — a rush of fictitious joint-stock companies, a speculative boom, a collapse in 1891 — but beneath that episode of chaotic financial management lay the silent transfer of property to those who had been creditors of the State or owners of slaves. The second way, and the lasting one, was systematic exchange-rate manipulation across the whole of the First Republic: whenever the rate threatened to strengthen the milréis — which would have reduced, in national currency, the revenue of the exporters — monetary policy was mobilised to hold it down. A devalued currency is a permanent subsidy to the export sector, paid by the whole population in the form of imported inflation.

The monetary stability of the First Republic, celebrated in the older manuals, is not stability against inflation but stability against currency appreciation. It is a monetary policy designed to protect the profit margin of a particular class at the expense of the purchasing power of every other. The Conversion Office of 1906, and later the Bank of Brazil as reformulated under Afonso Pena and Murtinho, are instruments of that project, not exceptions to it.

2.5 Foreign credit and public debt — English capital as silent partner

None of the valorisation operations would have been possible without foreign credit. Before 1906 the federative Republic had no internal monetary instruments sufficient to buy coffee stocks at scale. For that it turned to the London financial system — in particular to the house of Rothschild, historic agent of the Brazilian Treasury since the Second Reign. The bond issues made to finance the successive dammed-up harvests created a structure of indebtedness that tied Brazilian economic policy ever more closely to the risk assessment made in the City.

That tie has two consequences rarely discussed together. The first is that Brazil under the First Republic loses degrees of freedom to conduct any development policy other than the defence of coffee: renegotiating the debt, refinancing it, or simply keeping it current becomes the axis of economic diplomacy. The second is more delicate: Brazil's reliability as a debtor depends directly on the reliability of the coffee price, and the reliability of the coffee price depends on the Brazilian State acting, repeatedly, to sustain it. A recursive loop is created, in which London lends Brazil the money with which Brazil sustains the price of coffee that secures Brazil the credit of London.

Every severe external recession — 1913, 1921, 1929 — exposes the loop and shatters it. The crash of 1929 is not, in this sense, merely the trigger of the 1930 revolution: it is the formal closing of a cycle whose structural unsustainability had been given since Taubaté.

2.6 Regional costs — the Brazil that coffee did not see

The cost of coffee policy was not distributed evenly across the territory. Three maps help to see it. In the first, the railway network, the lines converge obsessively on Santos: between 1890 and 1930 the extent of track in São Paulo nearly doubles, while the branches of Rio Grande do Sul, Pernambuco and Bahia stagnate or recede. In the second, federal investment in ports, the asymmetry is still more aggressive: Santos and Rio de Janeiro receive successive enlargements and modernisations; Torres, Rio Grande, Recife and Salvador receive studies, reports and commissions. In the third, subsidised immigration, the state of São Paulo received between 1890 and 1914 more immigrants subsidised by federal and state funds than the whole of the rest of the country together.

What is drawn, in aggregate, is an economic geography managed by the function of coffee. The states that produced coffee were integrated into international capitalism as subordinate partners; those that did not were treated as an internal periphery. The word federation, as already observed, was no more than an ornament for political speeches with no national project behind them. What existed was not a federation but a paulista metropolis with forgotten provinces.

The political and military revolts of the period — the Federalist Revolution of 1892 to 1895, the war of Canudos in 1896 and 1897, the Naval Revolt of 1893 and 1894, the Contestado from 1912 to 1916, the Prestes Column from 1925 to 1927 — are not scattered episodes. They are the predictable symptoms of a regime that, to keep coffee profitable, had to ignore or repress everything that did not fit its equation.

2.7 The rhetoric of modernity — coffee as progress

It is instructive to observe how the official historiography of the Republic treated the coffee complex. The recurring word is modernisation: coffee is said to have brought Brazil the railway, the modern port, the bourgeois city, industry. The infrastructure was indeed built — but the rhetoric of modernity performs here the same function it performed in justifying the setting aside of Torres: it turns political choices into technical necessities.

The railway that reached São Paulo and did not reach the Northeast is not a decision of engineering; it is a decision of Congress. Paulista modernisation is the name given, in technical language, to a large-scale diversion of federal resources. Expertise as legitimation finds in the case of coffee its most elaborate application: economists, engineers and diplomats produce, across four decades, a body of technically sophisticated documentation that justifies the valorisation policy case by case. The mechanism is discreet but constant: what is political becomes technical, and what is technical becomes inevitable.

It is precisely for this reason that the Republic need not be authoritarian in the classical style. The dictatorship implicit in the coffee regime is a dictatorship of the budgetary argument: without valorisation, the country collapses. Fiscal blackmail works as a device of political discipline. To resist valorisation is, in the language of the regime, to resist rationality — and rationality, as always, admits no opposition.

2.8 The connection with the perspective of these Cadernos

Three of the theoretical threads of these Cadernos meet with particular clarity in the case of coffee. The first is the Benjaminian category of Origin invoked in the first essay: republican coffee is not the linear genesis of imperial coffee — it is, on the contrary, an origin in Benjamin's sense, a phenomenon that separates itself from what came before at the same time as it reinterprets it. The plantation existed under the Empire; the coffee regime as a machine of State is a properly republican invention.

The second is the republic of diplomas: the framers of valorisation policy — Antonio da Silva Prado, Davi Campista, Sousa Dantas, Whitaker — came, in their great majority, from the same law faculties and the same polytechnic schools. This is not coincidence; it is institutional endogamy. Technical training serves as the password; oligarchic belonging, as the substance.

The third is the theory of the captured State. The case of coffee is the fullest example of the thesis that runs through these Cadernos: that the First Republic is not a State episodically captured by an oligarchy, but a State whose architecture was designed from the outset to be capturable by that particular oligarchy. The Constitution of 1891, by giving the exporting states the power to tax their own exports, institutionalised the difference between contributing states and dependent states. Coffee is the filter through which that difference operates.

2.9 Coffee as a microcosm of the Republic

If the Port of Torres was the port that never was, coffee is the business that was — and that, in its exclusivity, dislodged everything else. As a mirror of the Republic it contains, in reduced scale, every one of its original mechanisms.

It contains financial corruption: valorisation produced, in each cycle, networks of agents, brokers and intermediaries whose function was to transfer, in the interstice between the official purchase price and the market price, significant percentages of public financing into private pockets.

It contains regional exclusion as deliberate policy: what was invested in Santos was what was not invested in Torres, Rio Grande, Recife and Belém. This was not scarcity of resources but choice of destination.

It contains veiled authoritarianism: the state of siege, federal intervention and the coerced vote were recurrent instruments for ensuring that the electoral majorities needed to approve the coffee operations existed at the right moment. The violence of the republican regime was not always exhibitionist; it was, above all, functional.

It contains oligarchic concentration: coffee policy, from the first day to the last, was the policy of a restricted subset of paulista families with mineiro, carioca and foreign ramifications. The rest — voters, workers, immigrants, peasants, other states — was scenery.

And finally it contains the appropriation of imperial projects for oligarchic ends: the port, railway and banking infrastructure inherited or sketched under Pedro II was redirected, under the Republic, to serve a single product. What was treated as betrayal — the perversion of a national project into a mechanism of plunder — finds here its engine. Coffee was not the exception to republican logic; it was that logic itself.

To understand the First Republic one has to recognise that politics was economics made institutional — and that the economics, in its turn, had a name, a surname and an address. Between the tracks of the Sorocabana railway and the warehouses of the port of Santos, it was not only coffee that passed. The Republic passed.