that was radically better for the economic prosperity of the
country had nothing to do with differences in the motivation
of those who owned the banks. Indeed, the profit motive,
which underpinned the monopolistic nature of the banking
industry in Mexico, was present in the United States, too.
But this profit motive was channeled differently because of
the radically different U.S. institutions. The bankers faced
different economic institutions, institutions that subjected
them to much greater competition. And this was largely
because the politicians who wrote the rules for the bankers
faced very different incentives themselves, forged by
different political institutions. Indeed, in the late eighteenth
century, shortly after the Constitution of the United States
came into operation, a banking system looking similar to
that which subsequently dominated Mexico began to
emerge. Politicians tried to set up state banking
monopolies, which they could give to their friends and
partners in exchange for part of the monopoly profits. The
banks also quickly got into the business of lending money
to the politicians who regulated them, just as in Mexico. But
this situation was not sustainable in the United States,
because the politicians who attempted to create these
banking monopolies, unlike their Mexican counterparts,
were subject to election and reelection. Creating banking
monopolies and giving loans to politicians is good
business for politicians, if they can get away with it. It is not
particularly good for the citizens, however. Unlike in Mexico,
in the United States the citizens could keep politicians in
check and get rid of ones who would use their offices to
enrich themselves or create monopolies for their cronies. In
consequence, the banking monopolies crumbled. The
broad distribution of political rights in the United States,
especially when compared to Mexico, guaranteed equal
access to finance and loans. This in turn ensured that those
with ideas and inventions could benefit from them.
P ATH -D EPENDENT C HANGE
The world was changing in the 1870s and ’80s. Latin
America was no exception. The institutions that Porfirio
Díaz established were not identical to those of Santa Ana
or the Spanish colonial state. The world economy boomed