World-System (1800-1900) How did Latin America Respond to Shocks?

 

In an earlier post (here) I investigated whether Latin America, in the 19th Century, benefited from the Monroe Doctrine. As a Geopolitical Alliance, Latin America benefited slightly from US intervention up to the 1880s, but not after that. However, the Monroe Doctrine was designed to minimize European influence in Latin America. One way to operationalize "interference" is to ask how the LA_19_US_input model handled shocks compared to the LA_19_WE_input.

In the 19th Century, interference in Latin America from Western Europe, the UK and the US is best viewed as a Random Walk.

A one standard deviation shock LA Growth (LA1) had effects extending out over about a half decade (see the graphic above). However, the Western European shocks were initially negative, meaning that growth in Western Europe depressed Latin American Growth. All the effects are small compared to the size of the shock. 

In fact, the AIC statistics above shows that Growth Shocks are best viewed as a Random Walk. For comparison, the three models are presented below.

Notes

LA_19_US_Input Model

LA_19_WE_Input Model

LA_19_UK_Input Model

LA_19_MM

US_19_MM

WE_19_MM

UK_19_MM

Did Great Britain Stabilize the World System in the 19th Century?

 

The role of the British Empire in the 19th Century (map in the Notes) was an important part of the Minsky-Kindleberger Framework for understanding the events of the Early 20th Century.

The Explanation of this book [...Charles Kindleberger (2013) World in Depression, 1929-1939...] is that the 1929 depression was so wide, so deep and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it...(pps. 291-292)

The qualitative Minsky-Kindleberger Framework (M-K) can actually be tested using Systems Theory and I will present some of the results in this post. The M-K Framework is important because it is the only explanation of the Great Depression that looks at the entire World-System.

To test the M-K Framework, I compared the Growth Component (W1) from four different World System models: (1) W19 BAU, Business-As-Usual, no Geopolitical Inputs, estimated from (1800-1900) and then forecast into the 20th Century, (2) W19 UK-Input, Geopolitical Inputs from the "declining" UK Hegemonic Leader (3)  WE20 BAU, estimated from 1900-1950, and (4) WE20 RU-Input, input from the RU20 model.**

The outputs from the models are graphed at the beginning of this post. Both the W19 BAU and the W19 UK-Input models produce collapse, supporting the M-K Framework. The WE20 models produce steady states around 1950. The  WE20 BAU model peaks after 1950 and the  WE20 RU-Input model peaks after the Great Depression, and then stabilizes around 1950.

I've added the W19 US-Input model to the graph above. It too would have stabilized the World System but at a lower level of growth.***

These results add to the M-K Framework the definition of Systemic Stability. The World System during the early 20th Century was unstable. The Hegemonic Leader, Great Britain,was collapsing and could not provide stability. The emerging Hegemonic Leader, the US, was not yet a World Power but could have stabilized the system if it had not been preoccupied with the Great Depression. Russia could have also stabilized the system but was preoccupied by the Russian Revolution.****

Notes 

** The WE20 RU-Input model was discovered by estimating models with inputs from all the WWII participants. It is interesting because it stabilizes the World-System during the Great Depression as does the WE20 US-Input model. None of the other models create stability (see the AIC Statistics below).

*** Note that none of these models forecast the  Great Depression. I've dealt with that issue here and here. The Great Depression was the result of an Economic Bubble created by recovery from WWI. The Bubble was popped by the Stock Market Crash of 1929.

**** I should also point out that Germany, as the instigator of the World Wars, was also unstable (see Late Nineteenth Century Development in Germany).

For information about data sources and how the models were constructed, see the Boiler Plate.

Declining British Empire

The British Empire lasted from the Late 16th to the Early 20th Century.

The map above shows the growth of the British Empire over time (from Jorstrand17).

W_19 BAU Model

The W_19 BAU model was estimated from 1800-1900. It can then be forecast out to 1950 to see, counterfactually, what would have happened in the early 20th Century if WWI, the Great Depression and WWII had never happened.

Measurement Matrix 

The Measurement Matrix for the W_19 BAU model shows the weights given to each indicator variable. The state variables components are: (1) W1 = (Growth-T) an environmental growth controller explaining 92% of the variation in the indicators. (2) W2 = (T-XREAL+Q+L) an environmental-export employment controller explaining an addition 7% of the variation. (3) W3 = (XREAL -Q - T) A Real Export-Economic growth controller explaining another 0.3 % of the variation.

There are three other state variables that are interesting but explain little variance: (4) W4 = (X - XREAL) Export Prices, (5) W5 = (Q - N - X) Malthusian Exports and (6) W6 = (N - L - Q) Malthusian Employment.

System Matrix

You can run the W_19 BAU Model here.

The System Matrix for the W_19 BAU model has three unstable roots and, as can be seen from the graphic at the beginning of this post, the W19 model collapses in the early 20th Century. The collapse is the result of negative feedback loops especially from W2 = (T-XREAL+Q+L), environmental-export employment controller, to W1 = (Growth-T), the environmental growth (the coefficient is F[1,2] = -0.020318992).

W_19 UK-Input Model

Systems Matrices

W_E20 BAU Model

Measurement Matrix 

System Matrix

W_E20 RU-Input Model

W20 US-Input Model

W_19 AIC Statistics

W_20 AIC Statistics

 

World-System (1800-1900) Did the Monroe Doctrine Benefit Latin America?

 

The Monroe Doctrine (1820) ushered in, for the US and Latin America, the idea of spheres of influence. The US would recognize a country's dominance in regions of the World-System if other countries would recognize America's dominance over Latin America. The Monroe Doctrine was central to American grand strategy in the 20th century and has been resurrected in the 21st Century as the "Donroe Doctrine" by the Trump II Administration in the 2025 US National Security Strategy.

The original Monroe Doctrine had some benefits for Latin America (see below and in the graphic above) that only last until the 1880s. 

What the resurrected Monroe Doctrine signals for the Future is unclear, but what it does establish clearly is one explicit plank of the Right-Wing Platform: Isolationism and restricted military interventionism. My question in this post is whether the original Monroe Doctrine (1820) was any benefit to Latin American Economic Growth? 

To investigate this question, I used the LA19 model (Long-Nineteenth Century, 1800-1900) and applied it to the period 1800-1820. Then, I forecast from 1820-1920 using only the 1800-1820 data and only using the LA1 Growth Component of the model. The result is presented in the graphic*** at the beginning of this post.

From 1820 to about 1870, Geopolitical Alignment with the US would have been good for Latin America. after that, however, almost any other Geopolitical Alignment (BAU, Business-as-Usual, TECHP, Technical Productivity, W World System, LA Latin America or WE Western Europe) would have been better until 1900. 

The original Monroe Doctrine was supposedly aimed at reducing Western European influence in Latin America, a US Geopolitical objective. How shocks transmitted from the US and Western Europe were handled by Latin America is investigated here.

You can experiment yourself with the LA19 BAU model. The model is unstable, cyclical, nonlinear, and hard to stabilize without creating chaos. The LA19 US Input model, implementing the Monroe Doctrine, is also unstable but can be stabilized with instructions in the R-code using the dse Package. So, one benefit of the Monroe Doctrine was, potentially to stabilize Latin America Development.

This is not the entire story about the Monroe Doctrine: (1) What was happening in Europe during the Long Nineteenth Century to prompt the Monroe Doctrine? (2) What happened to Latin America during the Great Depression (early 20th Century)? And, (3) What can be expected to happen with the "Donroe" Doctrine in the 21st Century? I'll deal with these questions in future posts.

You can follow other posts I have written in the Blog Roll here. For more information about data sources and how the models were constructed, see the Boiler Plate.

Notes

*** The other Geopolitical Alignments (BAU,TECHP, W, LA, WE) are all grouped together since they are difficult to distinguish on the graphic, but see the AIC statistics below. 

AIC Statistics

ll the Geopolitical versions of the LA_19 model are unstable.

The best model, using the AIC criterion, takes the state of the US_19 model as input LA_US = (-1467 < AIC = -1412 < -1365). However, there is no clear separation between the other Geopolitical models, for example: LA_WE = (-1679 < AIC = -1609 < -1538), LA_W = (-1516 < AIC = -1441 < -1369), LA_TECHP = (-1611 < AIC = -1546 < -1465), LA_BAU = (-1552 < AIC = -1483 < -1402). From the graphic at the beginning of this post, after 1880 the BAU, TECHP and W start performing better in terms of exponential growth.

LA19 Measurement Model

The first component is Overall Growth, the second Component is Export-led Growth, the third Component is Malthusian Exports and the fourth component is a Real Export Controller. LA1=Overall Growth, LA2=Q-N-X, LA3=X-XREAL-N, LA4=N-XREAL.

In other words, Economic Control in Latin America was directed at shocks from World Trade which would become very important in the early 20th Century with transmitted shocks from the World Wars and the Great Depression. I look at how the Latin American Economic models handled shocks in another post here.

World-System 2025: The Donroe Doctrine

 

Notes