How the South paid for the Northern crises and for its own subjugation

by Eric Toussaint

The debt crises in the periphery and the crises of the central capitalist countries are joint means to subordinate States to their creditors’ will. From Latin America to China, Greece, Tunisia, Egypt and the Ottoman Empire, the ruling classes have used debt as a weapon of domination and wealth accumulation. This study introduces a new series of six articles analysing “Debt: the subordination of Latin America”, following up the series of four recently published articles: “Newly Independent Greece had an Odious Debt round her Neck”, “Greece: continued debt slavery from the late 19th century to the Second World War”, “Debt as an instrument of the colonial conquest of Egypt” and “Debt: how France appropriated Tunisia”.

Starting from the 1820s, the governments of Latin American countries embarked on a borrowing spree after emerging from wars of Independence. European bankers were frantically looking for opportunities to lend to these new States and make big profits. |1| At first, these loans helped the war effort to ensure and consolidate the independence. During the 1820s, the external debt was in the form of debt securities issued by governments through brokers or bankers in London. From the 1830s, the lure of high yields attracted French bankers who became very active competitors to the London stock exchange. Over the following decades, other financial centres joined the fray: Frankfurt, Berlin, Antwerp, Amsterdam, Milan, Vienna and so on. The bankers’ risks were limited since any suspension of payment affected only the bondholders. Had the bankers loaned directly to the States, the situation would have been different, |2| as did happen on occasions when these bankers themselves did acquire some of the securities and were troubled when payments were suspended. Nevertheless the bankers freely manipulated the bearer securities market and made huge profits.

Recourse to external debt became counter-productive for the countries concerned, especially since these loans favoured the creditors immensely. Payments were often suspended and the creditors’ countries repeatedly resorted to military interventions to impose repayments. All the debt restructurings served the interests of the creditors and the big powers behind them who pushed the debtor countries into a vicious circle of debt, dependence and “development of underdevelopment”, to cite the economist Andre Gunder Frank. |3|

Debt has been used as a weapon to suppress and subordinate indebted countries. Rosa Luxemburg wrote in 1913 that loans “are yet the surest ties by which the old capitalist states maintain their influence, exercise financial control and exert pressure on the customs and foreign and commercial policy of the young capitalist States.” |4|

Fortunately, Mexico has won two victories against its creditors (First, in 1867, under the presidency of Benito Juarez. Second, after the Mexican Revolution led by Emiliano Zapata and Pancho Villa, who suspended debt payments in 1914). Brazil also successfully rebuffed its creditors between 1933 and 1943, as well as Ecuador in 2007-2009. Not forgetting Cuba’s rebuttal of the Paris Club since 1985. It is essential to learn the lessons from the past two centuries, whilst a new debt crisis burgeons in Latin America. Otherwise, we are destined to relive a disastrous past.

External debt as a means of domination and subordination

Throughout the 19th century, domination through external debt was a significant part of the imperialist policy of the major capitalist powers and it continues to plague the 21st century in new forms. As a fledgling Nation during 1820-1830, Greece capitulated to the dictates of creditor powers (especially Britain and France). |5| Though Haiti was liberated from France during the French Revolution and proclaimed its independence in 1804, debt again enslaved it to France in 1825. |6| France invaded the indebted Tunisia in 1881 and turned it into a protectorate. |7| Great Britain led Egypt to the same fate in 1882. |8| From 1881, the Ottoman Empire’s direct submission to its creditors (Great Britain, France, Germany, Italy and others), |9| stepped up its disintegration. In the 19th century, creditors forced China to grant territorial concessions and to fully open up its market. The heavily indebted Tsarist Russia may also have become a prey of creditor powers, had the Bolshevik revolution (1917-18) failed to repudiate the debt unilaterally.

During the second half of the 19th century different peripheral powers |10| – i.e. the Ottoman Empire, Egypt, the Russian Empire, China and Japan – had the potential to become imperialist capitalist powers. Only the last succeeded. |11| In fact, Japan had almost no recourse to external debt for its noteworthy economic development on its way to becoming an international power  in the second half of the 19th century. Japan carried out a significant autonomous capitalist development following the reforms of the Meiji period (introduced in 1868). It imported the most advanced western production techniques prevailing at that time, prevented foreign interests from making financial inroads into its territory, rejected external loans and eliminated interior obstacles to the movement of indigenous capital. At the end of the 19th century, Japan transformed from a secular autocracy to a robust imperialist power. The absence of external debt was not the only reason why Japan became a major imperialist power through a vigorous capitalist development and an aggressive foreign policy. Other factors equally mattered but they are too many to catalogue here. However, the lack of external debt evidently played a fundamental role. |12|

On the contrary, while China surged ahead with its impressive development until the 1830s to become a leading economic power, |13| its recourse to external debt allowed the European powers and the US to gradually marginalize and control it. Again, other factors were involved, such as wars launched by Britain and France to impose free trade in China and force the country to import opium. However, external debt and its damaging consequences still played a vital role. In fact, China had to grant land and port concessions to foreign powers so that it could repay its external commitments. Rosa Luxemburg wrote that one of the methods used by the Western capitalist powers to dominate China was “Heavy war contributions” which “necessitated a public debt, China taking up European loans, resulting in European control over her finances and occupation of her fortifications; the opening of free ports was enforced, railway concessions to European capitalists extorted.” |14| Nearly a century after Rosa Luxemburg, Joseph Stiglitz took up the issue in his book Globalization and Its Discontents.


Latin America’s external debt crises: 19th-21st century

Since they gained independence in the 1820s Latin American countries have experienced four debt crises.

The first occurred in 1826 (ensuing from the first major international capitalist crisis originating in London in December 1825) and continued until 1840-1850.

The second broke out in 1876 and ended in early 20th century. |15|

The third began in 1931 following the 1929 US crisis and lasted until the late 1940s.

The fourth crisis burst in 1982 when the US Federal Reserve took critical decisions on interest rates and plunging commodity prices. This crisis ended in 2003-2004 when foreign exchange revenues saw significant growth, thanks to increased commodity prices. Latin America also benefited from international interest rates, which were drastically lowered by the Fed, the ECB and the Bank of England after the Northern banking crisis erupted in 2008-2009.

A fifth crisis has been brewing since commodity prices nosedived in 2013-2014 along with the way major imperialist economies, which now includes China, are reacting (the likelihood of the Fed increasing interest rates and the flare-up of the speculative bubble caused a repatriation of capital to the US, Europe and possibly China). Puerto Rico is already facing the crisis head-on and that is an omen of things to come |16|. However, should a new crisis break out, Venezuela and Argentina might add fuel to the fire, especially since they are now borrowing from China, a new key player in Latin America.

When and how these crises break out is closely linked to the global economy and to the most industrialized economies in particular. Each debt crisis was preceded by a boom in the central economies when a part of the surplus capital was recycled into the peripheral economies. Each phase spawning the crisis (during which the debt increased sharply) corresponded to the end of a long expansionary period in the most industrialized countries. That has not happened in the current crisis because this time only China has been through a long expansionary period (along with other BRICS countries). Usually the crisis in indebted peripheral countries is caused by external factors, e.g. a recession or a financial crash striking the major industrialised economies, or a policy change in interest rates implemented by the central banks of the major powers of the time, etc.

The observations above contradict the dominant narrative propagated by the economic-historical schools of thought |17| and transmitted by the mainstream media and governments. It claims that the crisis that erupted in London in December 1825 and spread to other capitalist powers, resulted from the over-indebtedness of Latin American States; the crisis of 1870 resulted from the indebtedness of Latin America, Egypt and the Ottoman Empire; that of 1890 which nearly caused the bankruptcy of one of the principal British banks, from Argentina’s over-indebtedness; that of the 2010s, from the over-indebtedness of Greece and more generally the “PIGS” (Portugal, Ireland, Greece, Spain).

Debt crises and the long waves of the international capitalist economy

The outbreak of these four crises and the long waves of capitalism are interwoven. Several authors have analysed those waves since the early 19th century. One of them was Ernest Mandel whose analysis, although unfinished |18| hugely contributed to understanding the impact of political factors on the progression and outcome of the long waves. Mandel proposed the following chronology for the long waves spanning from the late 18th century to the early 20th century: |19| (also see the text-box entitled ‘The long waves in the history of Capitalism’ at the end of the article).

  • 1793-1825: a period of accelerated growth ending with a major crisis in 1825
  • 1826-1847 : a period of slower growth with a major crisis from 1846-1847
  • 1848-1873 : a period of accelerated growth with a major crisis in 1873
  • 1874-1893 : a period of slower growth with a major banking crisis from 1890-1893
  • 1894-1913 : a period of accelerated growth

The phases of both kinds of expansions are in turn subdivided into shorter waves varying from 7-10 years, ending with crises.


After the London Stock Exchange crashed in December 1825 the first modern crisis of the overproduction of commodities (1826) paved the way for a long slow growth wave (1826-1847) and Latin America’s first debt crisis (commencing in 1826-1827).

The second crisis broke out in 1873 after the stock market crashed first in Vienna then in New York. The long depression (1873-1893) of the industrialized economies and Latin America’s debt crisis (during the 1870s) followed.

Following the 1929 Wall Street crisis, the depression of the world economy of the 1930s led to another Latin American debt crisis, both occurring simultaneously. However, the aftermath of the latter was different in comparison to the previous crises. In fact, when 14 countries of the continent decided to suspend debt payment, the crisis led to a prolonged industrial boom in the most important countries (especially Brazil and Mexico) in stark contrast to the crisis of the central countries.

The fourth crisis in 1982 was the combined effect of the following: post-war impact of the second global economic recession (1980-1982); drop in commodity prices (linked to the recession); and hike in interest rates implemented by the Federal Reserve System in 1979.

The first four crises lasted 15-30 years. The fifth is in the making. They have engulfed almost all the independent States of Latin America and the Caribbean.

Payments were frequently suspended during these crises. Between 1826 and 1850, when the first crisis was blazing, almost all countries suspended their payment. In Latin America, eleven countries suspended debt payment in 1876 and in the 1930s eleven declared a moratorium. Between 1982 and 2003, Mexico, Bolivia, Peru, Ecuador, Brazil, Argentina, Cuba and others suspended repayment at one time or another, for a period of several months or years. Between late 2001 and March 2005, Argentina’s suspension of debt repayment for almost $ 90 billion led to a sustainable economic development.

Payment suspensions are usually followed by debt restructurings conducive to the creditors’ interests. There are very few peripheral states that have successfully repudiated their debts but they do exist. Mexico’s is an example during the mandate of the progressive Benito Juarez, Latin America’s first indigenous president. |20| This country, which suspended the payment of its odious debt in 1861, successfully expelled the French Expeditionary Corps in 1866 after four years of combats against the imposition of Maximilian of Austria, a European Emperor. In 1867, Mexico repudiated its debt to France. Examples of States holding a debt audit in order to challenge the payment (Ecuador in 2007-2008) are also very rare. These examples are enlightening.

The long waves in the history of Capitalism

Michel Husson wrote: “Mandel had already discussed the theory of long waves in Chapter 4 of Late Capitalism (1972) before elaborating them in a series of lectures in Cambridge in 1978, followed by the publication of ‘The Long Waves of Capitalist Development’ in 1980. One of the cornerstones of this theory is that the history of capitalism does not follow a cyclical order. It goes through a series of historical periods marked by distinguishable features, fluctuating between expansive and recessive phases. This alternation is not mechanical: it is not just a waiting period of 25 or 30 years for a turnaround. If Mandel spoke of waves rather than cycles, it’s better not to connect his approach to a theory generally attributed – probably wrongly – to Kondratieff, of regular and alternating movements of prices and production.

One of the highlights of the long wave theory is to reject the symmetry of turning points: the transition from the expansive phase to the depressive phase is “endogenous” i.e. it results from the system’s internal mechanisms. On the contrary, the transition from the depressive phase to the expansive phase is exogenous and not automatic. It requires a reorganisation of the social and institutional environment. The key idea here is that the transition to the expansionary phase is not predetermined and it must reconstruct a new “productive order”. It takes time; therefore it is not a matter of a cycle similar to the ‘cycle of conjuncture’ the duration of which is linked to the lifespan of the fixed capital. That is why this approach does not give any preference to technological innovations; rather, social transformations (relationship of forces between capital and labour, degree of socialization, working conditions, etc.) provide the key to the logic of this new productive order.” |21| (Trans: CADTM)

An adaptation of Ernest Mandel’s chronological tabulation would be as follows: |22|

1. “1789-1848: Period of the Industrial Revolution, of the great bourgeois revolutions, of the Napoleonic wars, and of the constitution of the world market for industrial goods.”: producing high growth in the wave from 1789-1825; with slower growth from 1826 to 1848.

2. 1848-1893: Period of ‘laissez faire’ industrial capitalism: with high growth (1848-73); with slower growth 1873-93 (“long depression free-competition capitalism.”)

3. “1893-1913: Heyday of classical imperialism and finance capital”. A phase of accelerated growth.

4. “1914-40: Beginning of the decline of capitalism, of the epoch of imperialist wars, revolutions and counter revolutions”. A phase of slow growth with crises of enormous magnitude.

5. From 1940 onward in the US and Latin America, and in post-World War II Europe: phase of high growth for late capitalism (called capitalismo tardio in Spanish) “born out of… the great defeats of the working class in the 1930s”. This phase of high growth (the “thirty golden years” according to some authors) ended in the US in the late 1960s and in Europe during the 1970s. From the early 1980s we entered a low growth. The fourth crisis of the debt of Latin America (and more generally, the developing countries) erupted in 1982.

To come back to Michel Husson: “Since the publication of Ernest Mandel’s book, the World’s economy has vastly transformed. With the increasing number of ‘emerging’ economies, there has been a real ‘global shift’ which is quantifiable. Thus in 2012, the exports of the emerging countries were equivalent to half of the global industrial exports, compared to only 30% in early 1990. Since the early 2000s, it is the emerging countries that have been the predominant vector of the increase in worldwide industrial production. It seems that capitalism has found a second wind by relocating production to countries generating significant productivity gains while paying low wages.” (Trans: CADTM) (…)

The ‘old’ capitalist countries or the entire world economy can no longer be explained like before: growths of production (including industrial production), productivity gains, and the development of the working class have been present in the South since the early 21st century. We can only cite a desynchronisation as one of the specific factors.“(Trans: CADTM) (…)”In short, what is true for the old Northern capitalist countries, namely the inability to pave the way for a new ‘expansionary long wave’, does not quite seem to apply to a host of countries accommodating a significant portion of the human race. We could endlessly talk about the expansionary long wave related to them. Whether it’s a matter of unequal and barbaric growth (reminiscent of England’s enrichment in the 19th century) is another issue: the decisive point is that in the countries concerned, capital accumulation and employment growth demonstrate an impressive dynamism.” (Trans: CADTM)

I would like to add that the strong upturn in the emerging countries (with China in the lead) and a considerable number of developing countries, is giving signs, since 2014 and 2015, of a decline or slowdown while the economies of the old industrialized countries are bogged down in slow growth.

This article intends to show, among other things, that the booming expansive phases are closely linked to debt accumulation in the peripheral countries (including Latin America), particularly boosted by the desire of the strongest capitalist economies (present-day China must now be considered to be among them) to increase capital flow to the periphery. The turning point of the high growth phase usually leads to (it will not be an exaggeration to say “provokes”) a debt crisis in the periphery. We are currently passing through a transitional period of history (without the high growth in the old capitalist economies) that could lead to a new debt crisis in Latin America and other peripheral countries (in Africa and Asia). Countries that are highly dependent on the export of raw materials to repay their debt will be the first to bear the brunt, followed by the peripheral countries within or on the margins of Europe (Greece, Portugal, Spain, Ireland, Cyprus, Ukraine and other countries of the former Eastern bloc, etc.) or the US (Puerto Rico, for example).

Bibliography :
Calcagno, Alfredo and Eric. 1999. La Deuda Externa explicada a todos, Catálogos, Buenos Aires, 126 p
Galeano, Eduardo. 1970. Las venas abiertas de América latina, Siglo XXI, Mexico, 1993, 486 p. (Original Spanish edition) Les veines ouvertes de l’Amérique latine, Plon, coll.  Terre humaine, ‎ Paris, 1981, 435 p. (French translation). Open Veins of Latin America. Monthly Review. (English translation. Available on the internet here :…)
Gilbart, James William, The History and Principles of Banking, London, 1834, 220 p.
Gunder Frank, André. 1977. L’accumulation mondiale, 1500-1800, Calmann-Lévy, 340 p. (English edition: World Accumulation, 1492–1789. Monthly Review Press, January 2011. 308 pages)
Husson, Michael. Afterword to Ernest Mandel’s Les ondes longues du développement capitaliste. Une interprétation marxiste. Paris, Éditions Syllepse, 2014.
Luxemburg, Rosa. 1913. The Accumulation of Capital. English edition first published in 1951 by Routledge and Kegan Paul. Available on the internet here:…
Mandel, Ernest, 1972, Le Troisième âge du capitalisme, Paris: La Passion, 1997, pg 500 (in French). (In English: Late Capitalism. London, NLB, 1976)
Mandel, Ernest. 1978. Long Waves of Capitalist Development, The Marxist Interpretation. Based on the Marshall Lectures given at the University of Cambridge, Cambridge University Press and Editions de la Maison des Sciences de l’Homme, Paris, 141 p.
Marichal, Carlos. 1989. A Century of Debt crises in Latin America, Princeton University Press, Princeton, 283p.
Marx-Engels, La crise, col. 10/18, Union générale d’éditions, 1978, 444 p
Reinhardt, Carmen and Rogoff, Kenneth, Cette fois, c’est différent. Huit siècles de folie financière, Paris, Pearson, 2010. (in French). (In English: This Time is Different: A Panoramic View of Eight Centuries of Financial Crises, NBER Working Paper No. 13882 issued in March 2008.
Reinhardt, Carmen M., and Sbrancia, M. Belen. 2015 “The Liquidation of Government Debt.” Economic Policy 30, no. 82 : 291-333
Reinhardt Carmen and Trebesch Christoph. 2015. The Pitfalls of External Dependence : Greece, 1829-2015
Sack, Alexander Nahum. 1927. Les effets des transformations des États sur leurs dettes publiques et autres obligations financières (Effects of the transformations of the states in their public debts and other financial obligations), Recueil Sirey, Paris. (In French. The entire text can be freely downloaded from the CADTM website here:… ) For examples of the application of the odious debt doctrine see :… and (in French)
Stiglitz, Joseph E. 2002, La Grande désillusion, Fayard, Paris, 324 p.(in French). (Original English version : Globalization and its Discontents. W. W. Norton & Company, USA)
Toussaint, Éric. 2004. La finance contre les peuples. La Bourse ou la vie, CADTM-Bruxelles/CETIM-Genève/Syllepse-Paris, 640 p.(in French). Your Money or Your Life, the Tyranny of Global Finance (in English). Haymarket, Chicago, 2005.
Toussaint, Éric. 2016.  Newly Independent Greece had an Odious Debt round her Neck…
Toussaint, Éric. 2016. Greece: Continued debt slavery from the late 19th century to the Second World War…
Toussaint, Éric. 2016, Debt as an instrument of the colonial conquest of Egypt…
Toussaint, Éric. 2016, « La dette : l’arme qui a permis à la France de s’approprier la Tunisie »,…

Acknowledgements: The author wishes to thank Brigitte Ponet, Damien Millet, Claude Quémar and Pierre Salama for their review and suggestions, and Pierre Gottiniaux for the illustrations. The author accepts full responsibility for any errors that may occur in this work.

Translated by Suchandra De Sarkar and Mike Krolikovski



|1| The same happened with Greece in 1824-1825, by providing two loans amounting to 100% of the GDP, at a time when Greece was remodelling itself. See:…

|2| This is what happened during 1960-1970 when the bankers issued direct loans. In 1982, when a debt crisis erupted in the Third World, they eliminated the contracts. In this, they were aided by the imperialist states and the duo of The World Bank / IMF which allowed them to return to the securitization of debt, as was the common practice throughout the 19th century until the 1930s. We will come back to it later. I addressed this issue in La Bourse ou la Vie, 1998, further updated and reedited in 2004. See:…

|3| Gunder Frank, André. 1972. Le développement du sous-développement : l’Amérique latine, Maspero, Paris, 399 p. (in French)… (available in PDF format in English)

|4| Luxemburg, Rosa. 1969. L’accumulation du capital, Maspero, Paris, Vol. II, p. 89 (In French). (In English : The Accumulation of Capital. Section 3, Chapter 30.…)

|5| See :… and…

|6| See: Sophie Perchellet, Haïti. Entre colonisation, dette et domination, CADTM-PAPDA, 2010…. Ordinance of the French Emperor, 1825, Article 2. “The current inhabitants of the French part of Saint Domingue will pay an amount of 150 million francs to the Caisse des Dépôts et Consignations (Deposits and Consignments Fund) of France in five equal annual instalments, the first of which will be due on December 1, 1825. This is intended to compensate the former colonial rulers who demand to be compensated.” This amount was reduced to 90 million francs a few years later”.

|7| See :…

|8| See :…

|9| See :… (in French)

|10| Periphery countries, compared to the major European capitalist powers (Great Britain, France, Germany, Netherlands, Italy, Belgium) and the US.

|11| Jacques Adda is one of the authors to have drawn attention to this issue. See: Jacques Adda. 1996. La Mondialisation de l’économie, tome 1, p.57-58 (in French)

|12| To learn more about the factors besides the rejection of external debt, read Perry Anderson Lineages of the Absolutist State (first published by NLB, 1974. Verso Edition 1979), on Japan’s transition from feudalism to capitalism.

|13| Kenneth Pomeranz, who has been keen on highlighting the factors thwarting China’s race to become one of the major capitalist powers, does not give importance to external debt. In fact, his study focuses on the pre-1830 to 1840 era. However, his analysis is very rich and inspiring. See: Kenneth Pomeranz, The Great Divergence, Princeton University Press, 2000, 382 pages.

|14| Rosa Luxemburg. 1969. L’accumulation du capital, Maspero, Paris, Vol. II, p. 60 (in French) (In English: The Accumulation of Capital. Section 3, Chapter 28)…

|15| Venezuela’s refusal to repay its debt ultimately resulted in a major face-off with the imperialist powers of North America, Germany, Britain and France. In 1902, the latter sent a united military fleet to block the port of Caracas and to persuade Venezuela, through gunboat diplomacy, to resume debt repayment. Venezuela could not wrap up its payments before 1943.

|16| See… (in French)

|17| See the 19th century writings of Sismondi and Tugan Baranovsky in particular, as well as the headlines of the printed media and the speeches by the European governments of that period.

|18| Mandel, Ernest. 1978. Long waves of capitalist development, The Marxist interpretation, based on the Marshall Lectures given at the University of Cambridge. Verso, 1995. (First edition published by Cambridge University Press, 1980)

|19| Mandel, Ernest, 1972, Le Troisième âge du capitalisme, Paris: La Passion, 1997, pg 500 (in French). (In English: Late Capitalism. London, NLB, 1976)

|20| Benito Juarez (1806-1872) was Zapotec, one of Mexico’s indigenous peoples (Oaxaca region).

|21| See Michel Husson :…

|22| Mandel, Ernest. 1978. Long waves of capitalist development, The Marxist interpretation, based on the Marshall Lectures given at the University of Cambridge. Verso, 1995. Pg 82.

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