Purely Animal: Pastoral Production and Early Argentine Economic Growth 1825–1865

Purely Animal: Pastoral Production and Early ArgentineEconomic Growth 1825–1865*

Carlos Newland

Universidad Torcuato Di Tella

and

Barry Poulson

University of Colorado

This study extends research on Argentine economic growth back to the early years ofpastoral activity from 1825 to 1865. Rapid expansion of Argentina’s economy in this earlyperiod was linked to increased demand for pastoral products in world markets. PastoralArgentina followed a development path characterized by labor accumulation in the midnineteenth century, in contrast to a development path dominated by capital accumulation inthe late nineteenth and early twentieth centuries.r 1998 Academic Press

1. INTRODUCTION

The late nineteenth and early twentieth centuries have always been described asthe golden age of Argentine agriculture and generally studies have concentratedon that period. Classic works, like those of Dıáz Alejandro (1970) and Corte´sConde (1979), or more recent ones, like those of Taylor (1994) and Adelman(1994), all describe a growing economy based on production and export ofagricultural goods. This study extends research back to 1825–1865, a time whenpastoral production dominated the agricultural sector. The pastoral sector grew atan average annual rate of 5.1% in this early period, a rate that compares favorablywith rates of agricultural growth in later periods, i.e., 4% for 1862 to 1900, 3.5%for 1900 to 1929, and 1.2% for subsequent years.1 Thus, the golden age ofArgentine agriculture extends back to the early years from 1825 to 1865.

While this study extends the golden age of Argentine agriculture back into the

* A first draft of this paper was written when both authors were Visiting Professors at theUniversidad Carlos III de Madrid. We thank the comments, information, and advice received fromSamuel Amaral, Roberto Corte´s Conde, Stanley Engerman, Leandro Prados de la Escosura, AlanTaylor, and the referees.

1 See Table 1 and Dıáz Alejandro (1970, p. 142).

EXPLORATIONS IN ECONOMIC HISTORY35, 325–345 (1998)ARTICLE NO. EH980700

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mid-nineteenth century, there are important differences in the structural changesthat accompanied this early phase of rapid growth compared to that observed inthe late nineteenth and early twentieth centuries. The early period of pastoralproduction is best characterized as a period of labor accumulation, in contrast tothe later periods dominated by rapid growth in the capital stock. The rapidexpansion of the labor force was accompanied by important shifts in the pastoraleconomy of the early and mid-nineteenth century. Successful expansion of thepastoral economy then set the stage for the subsequent shift to a grain economylater in the nineteenth century.

The paper begins with a brief background of the early history of the Argentineeconomy. This is followed by an empirical survey of growth in Argentine pastoralproduction from 1825 to 1865. The third section disaggregates the sources of thisgrowth in pastoral production. The evidence reveals the importance of a rapidlyexpanding labor force relative to land and capital as a source of growth in pastoralproduction. In the fourth section of the paper a Leamer-type model is used to tracethe development path of Argentine economy in the mid nineteenth century, incomparison to the development path in the late nineteenth and early twentiethcenturies. The final section summarizes the major findings in the paper.

Agricultural production and revenue data are decade averages for the 1820sand 1860s; the data for factor inputs in agriculture are for the years 1825 and1865. These estimates are based upon the very limited statistical evidenceavailable prior to the formation of a unified Argentine Republic in the early 1860s.For purposes of comparison with later development, estimates for the agriculturalsector in 1908 were also calculated.

2. HISTORICAL BACKGROUND

The Argentine nation was formed in a substantial part of the Viceroyalty of theRio de la Plata, created in 1776, in a relatively marginal area of the SpanishEmpire. The Napoleonic Wars loosened the links of the colony with Spain, andindependence was finally declared in 1816. Argentina then functioned as a looseconfederation of 14 provinces, and a national government was only established inthe 1860s. During these decades external and civil conflicts were frequent. Thewealthiest of the provinces, Buenos Aires, attempted to dominate national politicsin order to control trade and customs revenue. The economy of the country at thattime could be divided into two regions, the Littoral and the Interior. The Littoral,which included the provinces of Buenos Aires, Entre Rios, Corrientes, and SantaFe, was especially suited to pastoral production, with extensive plains and naturalprairies, rain distributed throughout the year, and a temperate climate. This regionhad the advantage of including the Plata Basin, with navigable rivers providingcheap transportation for its production. The Littoral region attracted all of thearriving European immigrants, as well as migrants from the rest of the country.About half of the Argentine population lived in the Littoral in this period.2

2 On the evolution of Argentine population in the period see Newland (1998).

326 NEWLAND AND POULSON


The importance of pastoral production in the Littoral region is reflected in thefact that it accounted for most of the exports of the country.3 For this reason ouranalysis of Argentine growth in this early period focuses on the Littoral. The otherregion, the Interior, included the provinces of Co´rdoba, San Luis, Mendoza, SanJuan, Catamarca, La Rioja, Santiago del Estero, Tucumań, Salta, and Jujuy. Incolonial times this region had experienced economic growth, providing food,supplies, and mules for the mines in Upper Peru. But by the early nineteenthcentury this mining production had collapsed, leaving the Interior without ademand for its products. The Interior was less suited than the Littoral for pastoralproduction. The Interior did not have an abundance of land, its geography wasmountainous, and the climate was harsher with scarce rainfall. Also, the Interiordid not have waterways, so goods had to be transported to the coast in carts andmules. Before the development of the railways in the 1870s, freight by land wasfive times more expensive than freight by water.4

3. GROWTH IN PASTORAL PRODUCTION AND EXPORTS,1825–1865

The argentine economy was dominated by pastoral activities until the lastquarter of the nineteenth century, when nonpastoral agricultural productionexpanded. Argentine agriculture received a strong impulse in the decade of the1810s when the terms of trade improved by more than 500%. During that decadeArgentina escaped from the Spanish restrictions on trade, permitting an expansionin exports and cheaper imports from other countries.5 This meant that in the earlynineteenth century pastoral investment became increasingly lucrative and domi-nated local investment. A traveler across the country in 1855 commented on the‘‘purely animal’’6 character of the economy, and another contemporary referred toArgentina as a ‘‘civilization of the hide.’’7 The pastoral activities were concen-trated in the Littoral, which included 45 million hectares of land potentially usablefor agriculture.8

Rapid growth of the Argentine economy between 1825 and 1865 was linked todynamic changes in the production and export of pastoral products. Pastoralexports grew at an average annual rate of 5.6% between the 1820s and 1860s. Atthe beginning of the period pastoral production was predominantly cow and horsehides; while cow hide production grew 3% per year, horse hide productiondecreased 1.8% per year.9 In the early 1820s these two products accounted for

3 See Mulhall (1885, p. 77) and Parish (1958, pp. 522–523).4 Burgin (1975, p. 161).5 Newland (1998a).6 Vicuna Mackenna (1936, II, p. 428).7 Giberti (1970, p. 73).8 On the land available for cattle raising in the pampean region see Moscatelli (1991).9 The sources for calculation of volumes in the 1820s and 1860s are Academia Nacional de Historia

(1978, p. F), Parish (1958, p. 511), andMemoria del Ministerio de Hacienda(1871).

327ARGENTINE PASTORAL PRODUCTION


three quarters of total exports;10 however, by 1870 falling prices for cow hides andfalling volume of horse hides reduced their share in total exports to about onethird.11 In contrast, the production of wool and sheep hides expanded at a rapidpace. Between 1825 and 1865 the production of wool grew more than 16% peryear. While sheep were practically nonexistent before the 1820s, by 1870 woolaccounted for a quarter and sheep hides for nearly one tenth of total exports.12 Therapid growth of world demand for Argentine wool was reflected in a tripling ofwool prices over the period and made sheep more profitable than cows.13 Tallowexport also experienced a rapid increase; from a small level of output in the 1820stallow production advanced more than 12% per year and accounted for more thanone quarter of total exports by 1870. Other pastoral products, like salted meat andhorse hair, declined as a share of pastoral production and export during the period.Finally, meat was also produced for the internal market, with per capita consump-tion reaching very high levels. Agricultural revenue for the 1820s and 1860s isshown in Table 1. Most agricultural revenue originated in exports, which grew

10 For the shares of pastoral products in total exports see Parish (1958, p. 511), Great Britain, Houseof Commons,Parliamentary Papers(1847, 64:2, p. 398),Estadı´stica de las Aduanas de la Repu´blicaArgentina(1870, pp. 122–125).

11 Prices of Buenos Aires hides in London covering the period can be found in Halperıń Donghi(1963, p. 65) and Reber (1972, p. 323).

12 On the development of sheep production see Sabato (1990).13 According to the American Customs valuation of Argentine wool. See U.S. Congress (Vols.

1829–1870),Commerce and Navigation.

TABLE 1Pastoral Revenue in the Littoral 1825–1865 (Decade Averages in Thousands of Pesos Fuertes)

1825 1865 1908

Annual growth

1825–1865 1865–1908

Exports 2,880 25,600 106,560 5.6 3.4Internal consumption 1,120 3,600 21,460 3.0 4.2Total 4,000 29,200 128,020 5.1 3.5

Sources.Pastoral exports were taken from Parish (1958, p. 511), Academia Nacional de Historia(1978, p. F),Memoria del Ministerio de Hacienda(1871, pp. 428–429) and Corte´s Condeet. al.(n.d.,p. 58). Internal consumption of meat for 1825 and 1865 was estimated assuming that all meat notexported as salted meat was consumed locally. The total amount of animals sacrificed was assumed tobe that of the hides exported. This may underate the internal consumption since surely a proportion ofthe hides was used domestically. However, at the same time many animals were sacrifized only fortheir hides and tallow, and their meat was not consumed, a force which we hope countervails theundercounting. The value of the meat consumed was assumed to be 50% of the value of a animal. Thispercentage was estimated according to Garavaglia (1994, p. 91) and Macchi (1971, p. 66). For thevalue of an animal see Table 2. Internal consumption for 1908 was taken from Ernesto Tornquist(1919, p. 107). It was assumed that the pastoral production corresponding to the Littoral (with respectto the whole country) was in proportion to its stock of capital relative to the national stock of capital.For 1825 and 1865 the proportion (80% for the Littoral) was taken from Napp (1875, p. 311); for 1908the proportion (74%) was taken fromCenso(1909, ii p. 439).



5.6% per year. Internal consumption of meat grew at a slower rate of 3% per year,following closely the growth of population. Total agricultural revenue is esti-mated to have grown 5.1% per year in this early period.

4. SOURCES OF GROWTH IN PASTORAL PRODUCTION,1825–1865

A growth accounting is used to explore the sources of growth in Argentinepastoral production from 1825 to 1865. We begin with an analysis of changes inthe factor inputs in agriculture. The growth in agricultural output is thendisaggregated into changes in factor inputs and factor productivity, and sources ofchange in agricultural productivity are discussed.

Changes in the Factor Inputs

a. Land. Argentina was clearly a resource abundant country in the earlynineteenth century. The abundance of resources was reflected in the cheapness ofland in Argentina compared to other countries. In 1850 an Argentine peon couldpurchase a hectare of land with less than a week’s wages, whereas in the UnitedStates a farm worker needed two months’ wages, and in England almost threeyears’ wages.14

Within the Littoral the growth of land in pastoral production was closely tied tothe expansion of the frontier into unoccupied public lands. Military campaignsgradually opened frontier lands to husbandry in regions containing hostile Indianpopulations, but this growth in land was quite erratic. For example, the frontier inBuenos Aires Province was expanded in the 1820s and again in 1833, but thenhalted due to Indian attacks in the 1850s. Pastoral lands in the Province of BuenosAires increased threefold, and that in Santa Fe doubled over the period; while inthe other provinces of the Littoral, Entre Rıós and Corrientes, the increase wassmaller.15 In the Littoral, total inputs of land into pastoral production grew from12 million hectares in 1825 to 26 million hectares in 1865, or about 2% per year.The heterogeneous nature of land in the Littoral makes it difficult to estimate theaverage price of land. The best estimate is that the value of land was increasingapproximately 7% per year over this period.16

As the price of wool increased in world markets it became increasinglyprofitable to convert some of the best lands in the Littoral to sheep production andto shift cow and horse production to the frontier. Wool production was moreprofitable than productions of cow and horse hides and salt meat. When, later inthe nineteenth century cows were produced for meat exports, then cows againdominated sheep production on the pampas. By that time grain production wasalso becoming profitable. In the late nineteenth century sheep production shifted

14 See Christensen (1981, pp. 312–313) for England and the United States, and Brown (1979, pp.152, 164), for Buenos Aires.

15 Estimated according to Mulhall (1885).16 See Brown (1979, p. 152) and Corte´s Conde (1979, p. 158).



first to marginal areas and then to Patagonia as the land was again used for cattleproduction and for agriculture.17 The shift in land use reveals that Argentina wasable to exploit the growing world market for agricultural products primarilythrough more intensive utilization of existing land within the Littoral, andsecondarily through extension of production into lands in the frontier.

b. Capital.The capital stock was growing at an annual rate of 3.1%, a rate ofgrowth above that for land, but below that for labor. The pace of capital formationin early Argentine growth reflected the unique characteristics of the capital stock.Most of the investment in pastoral activities consisted of livestock, with minorimprovements in the form of houses, wells, gutters, and dams. Sheep, whichrepresented only 3% of capital in 1825, increased to account for about 45% in1865.18 The movement from cow and horse to sheep production was a factorfacilitating capital accumulation, since sheep reproduce naturally at a rate of 35%annually, cows 25% annually, and horses only at 20% annually.19

Constraints were imposed on this growth of capital by the instability of thefrontier economy. Investments in livestock were frequently damaged by Indianattacks and the stealing of cattle. This was particularly harmful in the 1850s, whenthe province of Buenos Aires lost more than a million heads of cattle due to Indianraids.20 This is in contrast to the later periods when a peaceful frontier and greatersecurity in property attracted an increase in capital into rural activities. Capitalmarkets were also disrupted by political and economic instability in this earlyperiod. Argentina suffered three blockades to the port of Buenos Aires, coveringabout a 9-year period, that seriously disrupted foreign trade. Civil wars addedadditional elements of risk in a primitive capital market. Another source of riskwas a high rate of inflation linked to monetary expansion.21

Capital market institutions remained primitive in the early nineteenth century,resulting in high capital costs. Interest rates reached very high levels between1810 and 1820,22 and then decreased somewhat in the following decades whenrates were estimated at 20% per year.23 Even with these high rates of interest itwas difficult to attract foreign capital due to the riskiness of investment inArgentina’s primitive capital market. For long-term financing needs commercialand industrial companies relied almost entirely on self finance from retainedearnings and the informal financial market. Argentina was heavily dependent onforeign savings to finance a significant share of total capital formation.

In the late nineteenth and early twentieth centuries Argentina began to experi-ence acceleration in rates of capital formation linked to the construction ofrailways and other capital-intensive infrastructure investments. That period also

17 Giberti (1970, pp. 153–154).18 Derived from Table 2.19 Latzina (1889, p. 90).20 See Allende (1958, p. 122) and Barros (1975, p. 61).21 On Argentine inflation in this early period see Amaral (1989) and Halperin Donghi (1978).22 Gondra (1943, p. 323).23 See Brown (1979, p. 154), Burgıń (1975, p. 335), and Mulhall (1885, p. 22).


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witnessed rising capital output ratios across a broad industrial spectrum. Thisperiod of rapid capital accumulation is in contrast to the earlier period when ratesof capital formation were lower than rates of growth of the labor force. Given theprimitive nature of the domestic capital markets, foreign investors found profit-able opportunities investing in Argentina. The major source of foreign investment

TABLE 2Factor Inputs in Pastoral Production in the Littoral, 1825–1865

Factor inputs

Quantity Annual growth

1825 1865 1908 1825–1865 1865–1908

Land (million hectares) 12 26 55 2.0 1.7Cattle (millions) 4 7.9 21.2 1.7 2.3Sheep (millions) 1.6 31.5 45.7 7.7 0.9Horses (millions) 3.0 3.5 4.7 0.4 0.7Livestock capital (million pesos) 28.3 95.5 538.3 3.1 4.1Other capital (million pesos) 5.7 19.5 150.6 3.1 4.9Total capital (million pesos) 34.0 115.0 689.0 3.1 4.2Labor 11,000 72,000 285,000 4.8 3.2

Sources.Land: Estimates for the quantity of land are based on Mulhall (1885) andCenso(1909, vol.I). Animals: The number of cattle and horses in 1825 is estimated based on Parish (1839, pp. 371–373),Maeder (1990, p. 186) andAlmanaque(1968, p. 271). The number of horses in 1825 was taken fromAView of South America(1827, II, p. 172). The stock of sheep in 1825 are valued according toChiaramonte (1982, p. 42), with the assumption that 90% of the animals were located in the Littoral.The stock of cattle and horses in 1865 is estimated according to Mulhall (1885, p. 20) and the sheepaccording to Latham (1868, p. 367). Stock of animals in 1908 was taken fromCenso(1909). Theoriginal figure was increased by 12% to compensate for the areas in production not covered by the1908 Census. Capital: Total capital is expressed in silver pesos. Prices of animals for 1825 and 1865were taken from Barba (1967, p. 66),Anales(1866–1867), and Mulhall (1885, p. 23). We estimatedthe average price of a cow in 1825 and 1865 at 5 pesos, horses at 2.5 pesos and sheep at 0.5 and 1.5pesos, respectively. For 1825 and 1865 20% was added to the value of livestock to account for otherforms of capital. The livestock represented more than the 90% of the total capital in sheepestablishments. See Hutchinson (1945, p. 314) and Latham (1868, pp. 221–222). In the estancias,cattle represented about 75% of total capital. See Barba (1967, p. 66). Capital in 1908 was estimatedaccording toCenso(1909, ii p. 439). The original figure was increased by 12% to compensate for theareas in production not covered by the 1908 Census. Value of fences had to be estimated since the 1908Census only gave extension but not value of fences. It was assumed that the age of the 606,748 km offences of the Littoral (Censo1909, ii p. 439) was in direct relation to the imports of wire for fences(Censo1909, iii, p. 375), and that a fence lasted for 25 years and depreciated in a arithmeticprogression. The value of a kilometre of new fence, 500 silver pesos, was taken fromCenso(1908, iii,p. 8). Labor: The male population occupied in cattle raising in 1825 is calculated based on GarcıáBelsunce (1976) for Buenos Aires, and by Maeder (1969a) for Corrientes and Entre Rıós. Thepopulation in cattle raising in Santa Fe is assumed to be proportional to that for Corrrientes and EntreRıos. The population in 1865 for all the provinces in the Littoral was derived fromPrimer Censo(1872). It is assumed that the rural workers not classified in a specific subsection (laborers, slaves)followed the same pattern of occupation as that for the classified workers. The number of pastoralworkers for 1908 was taken fromCenso(1909). The original figure was increased by 12% tocompensate for the areas in production not covered by the 1908 Census. Part-time labor wasconsidered1⁄3 of full time labor.



in Argentina was the British capital market. There were several surges in Britishcapital flows to Argentina, with peak flows occurring about the turn of the century.Much of the British capital was invested in Argentine railways that also peakedabout the turn of the century. The Argentine government financed and operated alarge share of the early railway network, and in the 1880s they floated a significantnumber of loans in the British market to finance this railway construction. Overthe following years the Argentine government shifted toward private ownershipand operation of the railways. Not surprisingly the British investors financed andowned a large share of the private railways constructed in Argentina.24

c. Labor.Labor in pastoral production increased from 11,000 workers in 1825to 72,000 workers in 1865. Labor inputs grew at 4.8% per year, a rate greater thanthat for capital and land inputs in the early nineteenth century. This rapid growthin labor inputs reflected primarily shifts in the supply of labor in Argentinepastoral production. Argentina was often compared to California in terms of lowdensity of population and labor force in the early nineteenth century. The scarcityof labor was reflected in high wages in Argentina. Argentine wages were at leastdouble the comparable wage rates in Spain25 and surrounding countries at thetime.26 These wage differentials attracted a rapid growth of immigrants fromEurope. Most of these immigrants came from Spain and Italy, but pastoralproduction in the Littoral attracted significant numbers of Irish sheep herders aswell. Rates of immigration were much higher than the natural increase of thepopulation in this period. Foreign immigrants constituted about 15% of thepopulation of the Littoral in 1819 and 23% in 1869. Migration from the interior ofthe country also contributed to growth in the labor force of the Littoral. In 1819,11% of the population of the Littoral had come from the Interior Provinces; by1869 that share was down to 5.9%.27

The shifts in the structure of the labor force were driven primarily by the rapidgrowth of labor supply relative to other factor inputs in this early period. Laborshifted from cattle and horse production into sheep production as the labor forceexpanded. Wool production required about the same ratio of capital per unit ofland, but required higher labor inputs relative to land and capital. One peon could

24 See Gallman and Davis (1994).25 Comparison of salaries for 1860 in sterling pounds. The salary of an Argentine peon—10 silver

pesos—is taken from Brown (1979, p. 164). An agricultural laborer in Spain received the equivalent of4 or 5 Argentine silver pesos: see Garcıá Sanz (1979–1980, p. 63).

26 Comparison for 1842, based on salaries of servants, weighted by their purchasing power,measured as a simple mean of the following products: bread, meat, milk, eggs, rent of housing, and theprice of a riding horse. The salaries in Buenos Aires were double those from Uruguay, and were triplethose from Bolivia and Chile. See Wu Brading (1969).

27 The numbers for 1819 are tentative and are estimated based on Maeder (1969a and 1969b) andGarcıa Belsunce (1976). The numbers for 1869 were calculated according the information given in thePrimer Censo(1872). The reason why more workers from the Interior did not migrate to the Littoralmust still be researched. One reason may be that land for agriculture (as opposed to pastoralproduction) was easily accessible in the Interior, basically through the occupation of public lands. Thismeant that the rural sector did not expel population in the same way it did in Europe.



care for 900 cows covering 1000 hectares,28 while one shepherd could care for aflock of 1500 sheep covering 200 hectares.29

Because of the high rates of immigration and internal migration, the labor forceof the Littoral increased more rapidly than population in this early period. Laborforce in pastoral production is estimated to have increased 4.8% per year,compared to a 3.1% rate of population growth.30 This rapid rate of growth in thepastoral labor force resulted in a slow rate of wage increase for agriculturalworkers. According to one estimate, the average monthly salary for agriculturalworkers was 7.5 silver pesos in 1804, 10 pesos in 1854, and 12 pesos in 1864.31

This slow growth in wages is consistent with the convergence hypothesis formigration in an open economy labor market.

Changes in Productivity

Changes in factor productivity are calculated using the residual measure ofoutput per unit of factor input. This measure reveals that output per unit of inputincreased 2% per year and accounted for approximately two fifths of the growthof pastoral production in this early period. We do not attempt to disaggregate thisresidual measure into different sources of productivity advance due to the limitedinformation available. However, our discussion of productivity advance in earlypastoral production utilizes qualitative judgement and inferences from directevidence of productivity advance, following the precedent set in the work ofDenison (1967). Our discussion is of course more conjectural than comparablestudies for later periods.

a. Use of expanding resources.We conjecture that most of the productivityadvance in pastoral production was due to an adaptation to a changing allocationof resources. As labor shifted from cattle production to sheep production, outputper worker increased. The introduction of Merino sheep from Europe andcrossbreeding with local Creole sheep required even greater inputs of labor peranimal.32 However, the result of this crossbreeding was that the amount of woolproduced per animal doubled.33 The production of sheep tallow also increasedwith this crossbreeding.34 Thus, rising labor/land and labor/capital ratios wereaccompanied by significant increases in output per unit of factor input in sheepproduction.

Part of this shift of labor from cattle to sheep production would have takenplace even in the absence of the introduction of the more productive Merino

28 See Slatta (1985, pp. 59–61), Corte´s Conde (1979, p. 61), Alvarez (1966, pp. 67–68), andHutchinson (1945, p. 329).

29 See Latham (1868, pp. 218–221). Hutchinson (1945, pp. 310–311) indicates a larger number ofsheep per hectare.

30 Maeder (1969b).31 Brown (1979, p. 164).32 Brown (1979, pp. 138–139).33 Latham (1868, p. 24).34 Latham (1868, p. 24).



sheep. As noted in the previous section the changes in the terms of trade madesheep production more profitable than cattle production. The rapid expansion ofthe labor force lowered the relative cost of the more labor intensive sheepestancias. It is not possible to separate out these movements along the productionpossibilities frontier in Argentine agriculture due to changes in relative productprices and factor endowments, from shifts in the production possibilities frontierdue to improvements in the quality of sheep.

b. Economies of scale.Economies of scale do not seem to have been importantas a source of productivity advance in early Argentine agriculture. Within theolder counties of the Littoral the average size of estancias actually declined. Thisis characteristic of frontier economies in the transition from extensive to intensiveuse of the land in pastoral activities. However, in the Argentine case this transitionwas accelerated by the transition from cattle to sheep production. Sheep produc-tion required more intensive utilization of land inputs on smaller size estanciascompared to cattle production. Sheep estancias required significantly more laborinput per unit of land and slightly higher capital input per unit of land. Thedecrease in the average size of estancias and the modest growth of capital areconsistent with the inference that economies of scale played a limited role inproductivity advance in pastoral production.35

c. Technological change.Technological change does not dominate productivityadvance in early pastoral production in the way that it does production of grainslater in the nineteenth century. Barsky notes that in the mid-nineteenth centurythere was almost a complete absence of machinery and a low level of technologyin the Argentine Pampas.36 This changed rapidly in the last decades of thenineteenth century with the introduction of agricultural machinery and hybridseeds; the major impact of these technological changes was on grain productionrather than pastoral production.

Nonetheless one can identify several technological changes that improvedproductivity in Argentine pastoral production. The production of cattle tallow wasincreased by sacrificing animals at more advanced ages.37 In the saladeros andgraserias, in which salted meat, hides, and tallow were extracted, the use of steamvats increased the amount of tallow extracted per animal.38 A very simpleinnovation increased the capacity for maintaining livestock herds in times ofdrought; the bottomless bucket permitted the extraction of water from wells withgreater rapidity and ease.39The conservation of hides, essential given the time thattheir shipment required, benefitted from the application of arsenic that impedesdeterioration of the hides.40 The occupation of the frontier lands by cattle and

35 Brown (1979, pp. 138–139).36 Barsky (1988, p. 70).37 Parish (1958, p. 524).38 See Urquiza Almandoz (1978, pp. 174–177) and Lynch (1989, p. 143).39 Sbarra (1973, pp. 45–63).40 Alvarez (1966, p. 75).



horses produced an increase in productivity. Over time, the animals transformedthe land, eliminating the coarse grasses and generating tender nutritious grasses.41

d. Residual measures.Residual measures of productivity encompass broadlydefined advances in knowledge and organization efficiency. This is not a period ofsignificant improvements in human capital that might be embodied in the laborforce, although there was some increase in literacy and enrolment.42 There wasvirtually no investment in research and development other than that applieddirectly to the technology of pastoral production noted above.

There were several improvements in organizational efficiency that had asignificant positive impact on productivity and output growth in this early pastoraleconomy. One change was a clearer definition and enforcement of property rights.By the second half of the nineteenth century thefts and predation by indigenousIndians were no longer problems in the older regions of settlement, although theycontinued to be problems in the frontier regions. Within the Littoral the enforce-ment of compulsory registration of brands and branding of livestock facilitatedthe identification of animals by their proprietors.43The definition and enforcementof property rights in livestock were essential given the lack of fences betweenestancias in this early period.

One of the most important institutions that affected organizational efficiency inpastoral production was sharecropping. The economic rationale for sharecroppingin a frontier economy is now well developed in the literature.44 Sharecroppingmay be a superior contract to rental or wage contracts because it permits thesharecropper and the landlord to share risk in the enterprise. In a primitive capitalmarket when it is impossible to insure against risk, the sharecropping contract isoften the most efficient contract. Further, sharecropping may be superior to awage contract because it does not require monitoring of labor. The sharecropperhas an incentive to be productive in order to maximize the return from their shareof the output.

The reason that sharecropping was so important in the Argentine economy wasthat it proved to be a very effective way to attract workers in a labor scarceeconomy. From the perspective of workers, sharecropping proved to be aneffective way to accumulate capital in a capital scarce economy. In the early yearsin Argentina we can think of migration as a substitute for capital. In the lateryears, as labor became more abundant and capital markets improved, sharecrop-ping changed and became less important in the Argentine economy.

The unique form of sharecropping in Argentine sheep production, referred to asaparcerıá, proved to be very adaptable to the changing market conditions inpastoral production. Hilda Sabato traces changes in aparcerıá contracts as Argen-

41 See Latham (1868, p. 19).42 This seems to be trend for the city of Buenos Aires. See Newland (1994).43 For Buenos Aires seeRegistro Oficial de la Provincia de Buenos Aires(1873, Vol. 1822, pp.

36–37 and Vol. 1825, p. 44); for Entre Rıós see Urquiza Almandoz (1978, pp. 86–92).44 The path-breaking work on the theory of sharecropping was by Cheung (1969) and Stiglitz

(1974); for a more recent survey of this literature see Stiglitz (1989, pp. 115–125).



tina shifted from labor scarcity early in the nineteenth century to labor abundancelater in the century.45 In the 1850s and 1860s there were two types of aparcerıácontracts.46 In one contract, the shepherd, or aparcero, provided only his ownlabor and a small amount of capital to cover part of the expense of the operation.The landlord provided the whole flock of sheep and the capital necessary to coverthe expenses of the operation. In a second type of aparcerıá contract, the shepherdsupplied not only labor but also a part of the flock of sheep. Typically the aparceropurchased half of the flock but took care of the whole flock as an alternative topaying rent to the landlord. At the end of the contract period the shepherd receiveda share of the product of wool, sheepskins, and tallow, and also a share of thelambs. The shepherd’s share varied, but in this early period of labor scarcity thatshare was frequently one half. Aparceros had a great deal of independence, theycould sell their share of the flock or combine that share with the total flockprovided by the landlord.

Sabato traces how after 1860 market conditions changed in ways that were lessfavorable to the aparcero, and this was reflected in changes in the aparceriacontract.47 The first type of aparcerıá contract, in which the shepherd suppliedonly his labor, disappeared. The second type of contract, in which the aparcerosupplied both labor and capital, including a portion of the flock, continued, but theterms of the contract were less favorable to the aparcero. The share received bythe aparcero dropped from one half to one third or one fourth, and ultimately to acontract that depended upon the quality of the land and sheep.

5. MODELING ECONOMIC GROWTH IN A FRONTIER ECONOMY

Modeling economic growth in frontier economies, such as Argentina, in thenineteenth century must reflect their unique factor endowments. Each of thefrontier economies began with an abundance of land and other natural resourcesrelative to labor and capital. They initiated economic development by focusing onthe production of export commodities that intensively utilized the abundantresource base. As we have traced in the earlier parts of this paper, Argentina beganby specializing in the production and export of hides, and then wool, and finallygrains and meat.

In contrast to the frontier economies, the European economies had a shortage ofland and natural resources relative to other factor endowments. The Europeancountries had a much higher ratio of labor to land and natural resources comparedto the frontier economies. The industrialized countries also had a higher ratio ofcapital to land and natural resources. Over the course of the nineteenth century theEuropean economies became increasingly specialized in the production of goodsthat intensively utilized labor and capital, with manufacturing accounting for alarger share of total output compared to the frontier economies.

45 For a recent survey on aparceria in Argentina see Sabato (1990, pp. 107–111).46 Sabato (1990, pp. 108–109).47 Sabato (1990, pp. 110–111).



Returns to the factors of production reflected these differences in factorendowments between the frontier economies and the European countries. Thereturns to land and natural resources were much lower, while the returns to laborand capital were much higher in Argentina and other frontier economies. Inresponse to these differences in factor returns the nineteenth and early twentiethcenturies witnessed the greatest international flow of factors of production inhistory. At the outset of the nineteenth century the supply of labor in Argentinawas more elastic than the supply of capital. Immigration combined with high ratesof natural increase resulted in very high rates of growth in population and laborforce. At the outset of the nineteenth century Argentine primitive capital marketswere not yet capable of attracting high rates of foreign savings and investment.With relatively low rates of domestic savings and investment, rates of capitalaccumulation fell below the rates of growth of the labor force. Thus, in Argentinawe can think of an initial period of labor accumulation characterized by a risinglabor/capital ratio. For Argentina this initial period of labor accumulation ex-tended into the second half of the nineteenth century, while for the other frontiereconomies it ended earlier in the nineteenth century.

By the second half of the nineteenth century Argentina, like other frontiereconomies, was experiencing the high and sustained rates of growth in output andoutput per capita that we associate with modern economic growth. This rapideconomic growth was accompanied by higher rates of capital formation. All of thefrontier economies attracted increasing foreign savings and investment, althoughthe importance of these foreign capital flows varied among the different countries.Argentina attracted the highest rate of foreign savings and investment of all thefrontier economies. Given the much lower rates of domestic savings and invest-ment in Argentina, foreign capital accounted for a much higher share of totalcapital formation compared to the other frontier economies. Gallman and Davis(1994) estimate that foreign investors owned as much as two thirds of the totalassets in the Argentine economy at the turn of the century.

Modeling the Argentine Economy in the Nineteenth Century

In the standard neoclassical growth model capital accumulation leads toincreases in real wages and to an increasingly capital-intensive mix of commodi-ties. This neoclassical growth model does not have much explanatory power forearly Argentine pastoral production. Ed Leamer has introduced a three factor,n-good model that does provide a framework for capturing the unique factorendowments and products produced in frontier economies such as Argentina.48

We begin with a stylized model of a pastoral economy and then explore the actualdevelopment path of pastoral production in the Argentine economy in thenineteenth century.

The endowment triangle.Figure 1 represents graphically an endowmenttriangle with three factor endowments, land and natural resources (T), labor (L),

48 Leamer (1987).



and capital (K ). If the input proportions are fixed there will be a single inputvector corresponding to each commodity produced in the economy. Three typesof pastoral production are represented by points in the endowment triangle, hides(h), wool (w), and meat (m).

Lines drawn from the corners of the triangle through these three pointsrepresent input vectors. The intercepts of the input vectors on the left side of theendowment triangle illustrate that the ratio of labor to land is highest for meat (m)and lowest for hides (h), with wool (w) in the middle; i.e.,L/Tm. L/Tw . L/Th.The intercepts of the input vectors on the bottom side of the endowment triangleillustrate that the ratio of labor to capital is the highest for wool (w) and the lowestfor hides (h), with meat (m) in the middle; i.e.,L/Kw . L/Km. L/Kh. Finally, theintercepts of the input vectors on the right-hand side of the endowment triangleillustrate that the land to capital ratio is highest for hides (h) and lowest for meat(m), with wool (w) in the middle; i.e.,T/Kh. T/Kw. T/Km.

Lines connecting the production points and the input vectors divide theendowment triangle into triangles of diversification. Triangles of diversificationfor pastoral production are identified in the above endowment triangle. Underly-ing these triangles of diversification are prices for each of the commodities. As theprice of a commodity rises the triangle of diversification in that commodity willexpand.

Rybczynski and Stolper–Samuelson effects.Leamer demonstrates that by plac-ing the production points in the endowment triangle we can link the production ofgoods to the factor endowments implied by the Rybczynski effects and Stolper–Samuelson effects.

The derivatives of outputs with respect to endowments are called the Rybczynski effects,and the derivatives of factor prices with respect to commodity prices are called theStolper–Samuelson Effects. By the Samuelson reciprocity relations, these are equal. In thetwo-factor case, qualitative restrictions on these derivatives are well known: an increase in a

FIG. 1. The endowment triangle.



factor will lead to an increase in the output of the commodity that uses the factor intensivelyand to a decrease in the output of the other commodity.49

Leamer has shown how to extend this argument to the three-factor model throughplacement of the production points in the endowment triangle.50 Leamer appliesthe model to the production of manufactured goods in a cross section ofindustrialized countries.51

We have adapted the Leamer model to pastoral production in the Argentineeconomy in the nineteenth century. We identify the sign of Rybczynski derivativesfor our stylized model of the Argentine economy in Fig. 2. Within the trianglejoining the three production points for wool, meat, and hides an increase in thefactor supplies will result in an increase in the output of each of the three pastoralproducts. This is indicated by positive signs (1, 1, 1) for each of the threeproducts respectively within that triangle. However, outside that triangle anincrease in a factor input will tend to increase output of the commodity intensivelyutilizing that factor and decrease output for at least one of the other products.Graphically, the product closer to a factor vertex will tend to increase as thatfactor increases. Note that in the above graph the labor vertex falls in the regionwith signs (1, 2, 2). In our stylized model increases in labor tend to increasewool production, but decrease the production of hides and meat. Note that thecapital axis falls in the region with signs (2, 1, 1). This means that theaccumulation of capital would tend to decrease wool production and increase bothmeat and hide production.

49 Leamer (1987, pp. 968–969).50 Leamer (1987, pp. 968–973).51 Leamer (1987, pp. 984–996).

FIG. 2. Rybczynski and Stolper–Samuelson effects.



Paths of Development in Argentine Pastoral Production

We trace the paths of development for Argentina in the nineteenth century inFig. 3. The actual factor inputs in Argentine pastoral production estimated earlierin the paper are calibrated in this graph for three benchmarks, 1825, 1865, and1908. Following Leamer, we assume that within a triangle of diversification,outputs are linear functions of the endowments such asQj 5 bkk 1 blL 1 btT,whereQj refers to the output of productj, K, L, andT refer to endowment supplies,andbk, bl, andbt are fixed parameters.52 The solid arrows show the developmentpath followed in pastoral production over this period.

Factor Endowments in Pastoral Production

1825 1865 1908

Capital per man (pesos) 3091 1597 2418Hectares per man (hectares) 1091 361 193Capital per hectare (pesos) 2.83 4.42 12.53

In the initial period of labor accumulation from 1825 to 1865 Argentina becameincreasingly specialized in the production of products that intensively utilized therapidly growing factor of production, labor. This initial path of economicdevelopment is represented by the uppermost arrow. The path of this arrow istoward the labor vertex indicating a shift toward production of wool that moreintensively utilized labor relative to the other factor inputs. Note however, thatthis path of development still left Argentina in a triangle of specialization

52 Leamer (1987, p. 979). A reviewer points out that the Leamer model is restrictive in that itassumes constant technical coefficients. If land labor prices changed as immigration took place inArgentina then we would expect the technical coefficients to vary with changes in relative factorprices. The reviewer suggests that the Leamer model could be extended to this more relevant case, forexample through CGE modeling. That is beyond the scope of this article.

FIG. 3. Growth path in pastoral production (source, Table 2).



combining pastoral production. In Argentina this shift from cattle and horseproduction toward sheep production within the pastoral sector was consistent withthe change in factor endowments. The surprising evidence is that Argentina wasable to sustain high rates of growth in total output in this early period of laboraccumulation. Argentina absorbed a very rapidly growing labor force within thepastoral sector, with modest improvements in wages. It was able to achieve thiswith improvements in productivity in pastoral production accompanied by in-creases in output per capita.

A shift toward more capital intensive production after 1865 occurred withinpastoral production. With the production and export of meat the unit value of eachanimal increased, as local creole animals were crossbred with imported races likeHereford and Shorthorn. By sowing alfalfa, ranchers could also increase thenumber of animals per hectare of land. The fencing of ranch lands becameprofitable with the increase in numbers and value of animals per hectare. With thisexpansion in meat production relative to other pastoral products, Argentina beganto experience rates of total capital formation in excess of the rates of growth of thelabor force. Rising capital/labor ratios brought a shift in the path of developmentin the end of the nineteenth century, as represented by the lower arrow in Fig. 3.Note that in contrast to the arrow representing the development path prior to 1865,the arrow for the post 1865 period has shifted toward the capital axis. Along thisdevelopment path the increasing availability of capital tended to reduce thereturns to capital and increase the returns to labor.

TABLE 3Output, Factor Inputs, and Total Factor Productivity in Pastoral Production in the

Littoral: 1825–1865 and 1865–1908 (Overall Annual Rates of Change)

Land Labor Capital Output TFP

1825–1865 2.0 4.8 3.1 5.1 2.01865–1908 1.7 3.2 4.2 3.5 0.5

Sources.Estimates for 1825 and 1865 are based upon the data for output andfactor inputs in pastoral production contained in Tables 1 and 2. The weights usedfor the period 1825–1865 were based upon the estimates for the value of animalsand land in Buenos Aires in 1857 given by Mulhall (1885, p. 17). It is assumed thatthe value of animals and land in other provinces of the Littoral were proportional tothat for the 1880s estimated by Mulhall (1885, p. 17). The return to land and capitalis estimated at 20% based upon Brown (1979, p. 154), and Mulhall (1885, p. 22).The return to labor is based upon a monthly salary in 1857 of 10 silver pesos,according to Brown (1979, p. 175). The resulting weights for each of the factorinputs are 35% for land, 20% for labor, and 45% for capital. The weights used forthe period 1865–1908 are those used by Dıáz Alejandro (1970, pp. 142–144). Thesewere 37.5% for land, 25% for labor, and 37.5% for capital. These weights areconsistent with those estimated for the early period. Between these two periods thevalue of land increased and there was a rapid expansion of the labor force, resultingin increased weights for these factor inputs.



CONCLUSION

Economic historians have tended to focus on the late nineteenth and earlytwentieth centuries as the golden age of Argentine economic development. Thisstudy suggests the rates of agricultural growth in the early nineteenth century,centered on pastoral production, compare favorably with rates of growth in thesubsequent period.

The early nineteenth century is best described as one of labor accumulation inthe Argentine economy. Rapid rates of growth in the labor force in Argentineagriculture reflected high rates of immigration and internal migration, as well as ahigh rate of natural increase of the population. In contrast, land inputs and capitalinputs into agricultural production grew at a more modest pace. The result wasrising labor/land ratios and labor/capital ratios in pastoral production. By the latenineteenth and early twentieth centuries rates of capital accumulation increased,accompanied by rising capital/labor and capital/land ratios in pastoral production.

A growth accounting reveals that productivity change was more rapid andaccounted for a greater share of growth in agricultural output in the mid-nineteenth century compared to the subsequent period. Most of this improvementin productivity is accounted for by the expansion and reallocation of resourcesfrom cattle production and export into sheep production and export. The introduc-tion and crossbreeding of Merino sheep with local sheep in Argentina signifi-cantly increased output of wool. Rising prices for wool also increased the revenuegenerated from wool production and export.

A three-factor,n-good model is used to trace the development path of pastoralproduction in the early nineteenth century and to compare that to the developmentpath in the late nineteenth and early twentieth centuries. Argentina began thenineteenth century with an abundance of land and a pastoral economy dominatedby cattle production. Argentina then followed a development path in which sheepwere substituted for cattle, reflecting the growing endowments of labor andcapital relative to land, and the rising price for wool in world markets. Movementalong this development path tended to increase the returns to land and decreasethe returns for labor; while the returns to capital first decreased then increased. Inthe late nineteenth and early twentieth centuries pastoral production shiftedtoward meat and away from wool. This new development path reflected innova-tions that opened world markets for live cattle and frozen meat from Argentina.But it also reflected higher rates of capital accumulation relative to other factorinputs in the more mature Argentine capital market of the late nineteenth century.

In 1809 the Argentine patriot, Mariano Moreno, predicted accurately the futureof the Argentine economy. Like the classical economists of his day he argued thatthe growth and prosperity of the Argentine economy would be linked to itssuccess in expanding agricultural goods in exchange for manufactured goods thatcould not be produced locally at a low cost.53 The following century would proveMoreno and the classical economists right. Argentina experienced rapid economic

53 Moreno (1810, p. 29).



growth linked to pastoral production in response to increased demand for theseproducts in world markets. Moreno advocated trade liberalization to promoteArgentine agricultural export industries. Over much of the nineteenth centuryArgentina did in fact pursue policies of trade liberalization and deregulation thatbenefitted the export sector. A clearer definition of property rights in land andanimals was also important in the expansion of the agricultural economy. By theend of the nineteenth century and the beginning of the twentieth centuryArgentina had adopted the gold standard, marking its emergence as a world classeconomy. This period represents not the beginning, but rather the culmination of agolden age in Argentine agriculture extending back to the early nineteenthcentury.

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Documents

Purely Animal: Pastoral Production and Early Argentine Economic Growth 1825–1865