pesos for one dollar. This should have been a vindication of
those who thought that they should put their savings in
dollars. But it wasn’t, because the government then forcibly
converted all the dollar bank accounts into pesos, but at the
old one-for-one exchange rate. Someone who had had
$1,000 saved suddenly found himself with only $250. The
government had expropriated three-quarters of people’s
savings.
For economists, Argentina is a perplexing country. To
illustrate how difficult it was to understand Argentina, the
Nobel Prize–winning economist Simon Kuznets once
famously remarked that there were four sorts of countries:
developed, underdeveloped, Japan, and Argentina.
Kuznets thought so because, around the time of the First
World War, Argentina was one of the richest countries in
the world. It then began a steady decline relative to the
other rich countries in Western Europe and North America,
which turned, in the 1970s and ’80s, into an absolute
decline. On the surface of it, Argentina’s economic
performance is puzzling, but the reasons for its decline
become clearer when looked at through the lens of
inclusive and extractive institutions.
It is true that before 1914, Argentina experienced around
fifty years of economic growth, but this was a classic case
of growth under extractive institutions. Argentina was then
ruled by a narrow elite heavily invested in the agricultural
export economy. The economy grew by exporting beef,
hides, and grain in the middle of a boom in the world prices
of these commodities. Like all such experiences of growth
under extractive institutions, it involved no creative
destruction and no innovation. And it was not sustainable.
Around the time of the First World War, mounting political
instability and armed revolts induced the Argentine elites to
try to broaden the political system, but this led to the
mobilization of forces they could not control, and in 1930
came the first military coup. Between then and 1983,
Argentina oscillated backward and forward between
dictatorship and democracy and between various
extractive institutions. There was mass repression under
military rule, which peaked in the 1970s with at least nine
thousand people and probably far more being illegally
executed. Hundreds of thousands were imprisoned and